GOVERNMENT BONDS denoted by r and is assumed to be paid out once per period. Expectations on r for future periods are assumed to be static at the current value. A member of the ith generation holds the amount of assets ay while young nd the amount a while old The asset holding while old constitutes the provision of a bequest, which is assumed to go to the immediate descen ant, a member of generation i 1. Since the focus of the analysis concerns shifts in tax liabilities and government debt for a given level of government expenditure, it is assumed for convenience that the govern ment neither demands commodities nor provides public services. In this section,it is also assumed that the amounts of government debt and taxes are zero. Using the letter c to denote consumption, and assuming that consumption and receipt of interest income both occur at the start of the period, the budget equation for a member of generation l, who is currently old, is A+A48=c+(1-r)A The total resources available are the assets held while young, Ai, plus the bequest from the previous generation, Ao. The total expenditure is con- sumption while old, ci, plus the bequest provision, Ai, which goes to a member of generation 2, less interest earnings at rate r on this asset holding The budget equation for members of generation 2(and, more generally, for members of any generation i 22) is, assuming that wage payments occur at the start of the young period =C+(1-r)A2 and, for the old period A2+A2=c2+(1-r)A2 a portion of the lifetime resources of a member of generation i goes to a bequest provision, Ai, which I assume is motivated by a concern for a member of generation i 1. This concern could be modeled by intro- ducing either the(anticipated)consumption levels or attainable utility of a member of generation i I into the utility function for a member of the ith generation. For the purpose of the present analysis, the crucial condition is that this utility depend on the endowment of a member of +I rather than, per se, on the gros distinction between the gross bequest and the net bequest, which deter- mines the endowment of i l, will be discussed below. So long as a member of generation i can transfer resources to a member of generation l only through the transfer of unrestricted purchasing power(which rules out the"merit good"case discussed in n 8 below), the two types of models of interdependent preferences--concern with consumption levels and concern with attainable utility-will be equivalent in the sense of