JOURNAL OF POLITICAL ECONOMY net receipt to his descendant, a member of generation i l, of size (1-t)A. Of course, the tax receipts must also go somewhere. Suppose that these receipts are transferred to members of generation i I(while old)in accordance with a rule that is independent of the size of each individual's inheritance Since an individual's contribution to general tax revenue will typically be valued by him at less than an equal amount of own income, it is clear that an increase in t will tend to lower the amount of intergenerational transfers. In particular, the higher the value of t, the less likely that a bequest or gift motive will be operative. Suppose, however, that the value of t is sufficiently low that all intergenerational transfers are operative, even if at reduced levels. In this case the previous results on the effect of hange in government debt remain valid Consider the situation in which the principal on the government debt paid off by generation 2. Equation(10)continues to apply in the presence of inheritance taxes, but equation(12)must be modified to +(1-n)(1-τ)A+(1-r)tA-B =+(1-r)+(1-r)242 where tAo represents the transfer to a member of (old)generation 2 corresponding to his share of the receipts from the total taxes paid on the average generation I bequest, Ag. In deciding on a plan for consumption nd intergenerational transfers, an individual is assumed to treat tA as exogenous. Consider the conjecture that, when B rises, each member of generation I continues to respond by maintaining the value of i and hence, by maintaining the value of the net pretax bequest, (1-r)4o-B This response requires an increase in Ai by 1/(1-r) times the increase in B. Each individuals net posttax bequest would fall in this case, but this fall would be offset, at least on average, by an increase in the transfers to generation 2 which are financed from the inheritance tax receipts, tAg In this circumstance, the individual values of c2, c2, and A2-and, hence the attained value of U2-would remain fixed. Hence, by maintaining the net pretax bequest, each member of generation I achieves the same combination of co and U2 as before the shift in B. On the other hand, if an individual member of generation 1 decided to increase his net pretax bequest, while all other members held their net pretax bequests fixed it would turn out for this individual that U* would increase, while co would decrease. The terms on which an individual can exchange co for U2 depend on t and r, and these terms have not been altered by the change in B. Further, when the transfer to generation 2 of size tAi is included there is also no change in an individuals overall wealth position. There- fore, the pattern which maintains the net pretax bequest-and thereby