The failure of Ricardian equivalence under progressive wealth taxation
AbstractAlthough the Ricardian Equivalence Theorem holds under a linear estate tax schedule, it fails to hold under a nonlinear estate tax schedule. In a representative consumer economy, a temporary lump-sum tax increase reduces contemporaneous consumption. If different consumers face different marginal estate tax rates because they leave bequests of different sizes, a lump-sum tax increase redistributes resources from consumers in low marginal estate tax brackets to consumers in high marginal estate tax brackets; aggregate consumption mey rise, fall, or remain unchanged. These departures from Ricerdian Equivalence hold more generally under any nonlinear tax on saving, wealth or income accruing to wealth.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 30 (1986)
Issue (Month): 1 (June)
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Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Andrew Abel, . "The Failure of Ricardian Equivalence Under Progressive Wealth Taxation," Rodney L. White Center for Financial Research Working Papers 22-86, Wharton School Rodney L. White Center for Financial Research.
- Andrew B. Abel, 1986. "The Failure of Ricardian Equivalence Under Progressive Wealth Taxation," NBER Working Papers 1983, National Bureau of Economic Research, Inc.
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