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Incentive Effects of Inheritances and Optimal Estate Taxation

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  • Wojciech Kopczuk

Abstract

I consider optimal nonlinear taxation of income and bequests with a joy-of-giving bequest motive and explicitly characterize the optimal estate tax rate. The optimal formula trades off correction of externality from giving and discouraging effort of children due to income effect generated by bequests. The analysis shows that optimality of a positive tax on bequests rests on the strength of the effect of bequests on behavior of future generations. The analysis also suggests that inheritance, rather than estate tax, is better suited to implement the optimal policy.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.3.472
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 3 (May)
Pages: 472-77

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:472-77

Note: DOI: 10.1257/aer.103.3.472
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  1. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, vol. 83(2), pages 217-230, February.
  2. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
  3. Wojciech Kopczuk, 2003. "The Trick Is to Live: Is the Estate Tax Social Security for the Rich?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(6), pages 1318-1341, December.
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Cited by:
  1. Johann K. Brunner & Susanne Pech, 2013. "Taxing Bequests and Consumption in the Steady State," CESifo Working Paper Series 4453, CESifo Group Munich.
  2. Abraham, Martin & Lorek, Kerstin & Richter, Friedemann & Wrede, Matthias, 2014. "Strictness of tax compliance norms: A factorial survey on the acceptance of inheritance tax evasion in Germany," IWQW Discussion Paper Series 07/2014, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).

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