Deficits, Gifts, and Bequests

What is the response of aggregate consumption to a deficit-financed tax cut? It is well-known that intergenerational transfers are key to answer this question. I address this issue by studying a heterogeneous-agents overlapping-generations economy with imperfect altruism. The model generates richer and more realistic transfer behavior than a dynastic or an overlapping-generations economy. The model is calibrated to match aggregate data on inter-vivos transfers. I find that the response of aggregate consumption to a deficit-financed tax cut is quantitatively more similar to the overlapping-generations economy's welfare implications, however, tend to be closer to the dynastic economy's.