Transfers to the Poor and Long Run Savings

This paper examines the sensitivity of long run capital accumulation to income redistribution to the poor. I address this question using a simulation model composed of two classes of life cycle consumers, rich and poor, whose economic lives have fifty‐five periods. The poor hue a higher marginal propensity to consume than the rich because they possess a higher rate of time preference and for because they are liquidity constrained. Considering a wide range of parameter values, I find that lump sum, intergenerational redistribution from rich to poor causes minimal reduction in long run life cycle savings.