Actually, it should turn out worse for the next generation, at least until they can eat their parents:

as I understand it, if a creature dies, the natural thing that happens is for the magic to "reenter the system". The magic becomes reincarnated in the next generation.

Now, if a race were cannibalistic and ate its dead, then there would be no magic to naturally reenter the system and become reincarnated in the next generation. They have to wait for their parents to die so that they can eat their parents so that they can inherit their magic.

Goblins still have some magic in them because they're not particularly efficient at stealing the magic of the things that they eat. So even if a goblin dragon eats a dead goblin, like 85% of that goblin's magic still gets recycled. This results in the next generation only having a little bit less magic, and is why the race has been able to survive with this system: they had time to evolve and adapt to their lower innate magic through generations instead of just getting born with no magic out of the blue (and also, no goblins are born with [i]no[/i] magic, due to limits [of the calculus type]). This is also why goblins haven't taken over all the magic in the world: even if they eat a sorcerer, the goblin only gets like 15% of the sorcerer's magic. When that goblin dies, only 15% of that 15% ends up in the goblin dragon, with the other 85% of that 15% reincarnating back in its original race.