Vanity Economics
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Vanity Economics

An Economic Exploration of Sex, Marriage and Family

C. Simon Fan

This book presents an accessible and sometimes controversial economic exploration of numerous issues surrounding sex, marriage and family. It analyzes the role of ‘vanity’, defined as social status and self-esteem, in social and economic behaviors.
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Chapter 24: Intergenerational transfers of wealth

C. Simon Fan

Extract

It is important to understand intergenerational transfers; they matter greatly to consumption and saving, which are crucial to economics. For example, aggregate consumption accounts for more than half of the gross domestic product (GDP) in almost every country in the world. Thus fluctuations in consumption are a major source of business cycles. Further, investment funds come from saving, which implies that saving is a main determinant of economic growth. Most of us have enough experience and have made enough observations to know that consumption and saving decisions are often made by entire households rather than individuals. Children are particularly a factor in such decisions. The need to save may arise mostly from a concern for children and grandchildren. Some empirical studies show that intergenerational transfers account for 50-80 per cent of the capital accumulation in the USA. In particular, a significant fraction of down-payments for first-time housing purchases in the USA are made by parents. In Asian countries that have much higher saving rates, this should be more important. The classical economist Alfred Marshall (1920, p. 228) made the well-known statement that in his time, 'men labour and save chiefly for the sake of the families and not for themselves …'. This statement may suggest that saving may be more related to a concern for children at low economic development levels. As noted in Chapter 4, China's high saving rate is mainly a result of many parents wanting to help their children purchase expensive flats in Chinese cities.

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