Advanced Search
MyIDEAS: Login to save this paper or follow this series

Estate Taxes, Consumption Externalities, and Altruism

Contents:

Author Info

Abstract

We study how the introduction of consumption externalities affects the efficiency of the dynamic equilibrium in an economy displaying dynastic altruism. When the bequest motive is inoperative consumption externalities affect the intertemporal margin between young and old consumption and thus modify the intertemporal path of consumption and capital. The optimal tax policy that solves this intertemporal inefficiency consists of a tax on capital income and a pay-as-you-go social security system. The later solves the overaccumulation of capital due to the inoperativeness of the bequest motive and the former solves the inefficient allocation of consumption due to consumption externalities. When the bequest motive is operative consumption externalities only cause an intratemporal inefficiency that affects the allocation of consumption between the generations living in the same period but do not affect the optimality of the capital stock level. This suboptimal allocation of consumption implies in turn that the path of bequest is also suboptimal. The optimal tax policy in this case consists of an estate tax and a capital income tax. The estate tax corrects the intratemporal inefficiency but generates an intertemporal inefficiency which is corrected by means of an appropriate capital income tax.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://pareto.uab.es/wp/2005/65805.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 658.05.

as in new window
Length: 26
Date of creation: 08 Nov 2005
Date of revision:
Handle: RePEc:aub:autbar:658.05

Contact details of provider:
Postal: 08193, Bellaterra, Barcelona
Phone: 34 93 592 1203
Fax: +34 93 542-1223
Email:
Web page: http://pareto.uab.cat
More information through EDIRC

Related research

Keywords: Consumption externalities; bequests; optimal tax rates;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Laitner, John, 1988. "Bequests, Gifts, and Social Security," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 275-99, April.
  2. Andrew B. Abel, 2005. "Optimal Taxation when Consumers Have Endogenous Benchmark Levels of Consumption," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 21-42.
  3. de la Croix, David & Michel, Philippe, 1997. "Altruism and self-refrain," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Apr 1998.
  4. Weil, Philippe, 1987. "Love thy children : Reflections on the Barro debt neutrality theorem," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 377-391, May.
  5. Andrew B. Abel, 1988. "Operative Gift and Bequest Motives," NBER Working Papers 2331, National Bureau of Economic Research, Inc.
  6. Alonso-Carrera, Jaime & Caballe, Jordi & Raurich, Xavier, 2005. "Growth, habit formation, and catching-up with the Joneses," European Economic Review, Elsevier, vol. 49(6), pages 1665-1691, August.
  7. Andrew B. Abel, 1985. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection," NBER Working Papers 1664, National Bureau of Economic Research, Inc.
  8. Turnovsky, Stephen J. & Monteiro, Goncalo, 2007. "Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences," European Economic Review, Elsevier, vol. 51(2), pages 479-504, February.
  9. de la Croix, David & Michel, Philippe, 1997. "Optimal growth when tastes are inherited," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Jun 1997.
  10. repec:ebl:ecbull:v:4:y:2002:i:7:p:1-10 is not listed on IDEAS
  11. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Consumption Externalities, Habit Formation and Equilibrium Efficiency," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 231-251, 06.
  12. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Aspirations, Habit Formation, and Bequest Motive," UFAE and IAE Working Papers 641.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  13. de la Croix, David, 1996. "The Dynamics of Bequeathed Tastes," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1996004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  14. Amartya Lahiri & Mikko Puhakka, 1996. "Habit Persistence in Overlapping Generations Economies Under Pure Exchange," UCLA Economics Working Papers 754, UCLA Department of Economics.
  15. Ronald Wendner, 2002. "Capital Accumulation and Habit Formation," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-10.
  16. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  17. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
  18. Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October.
  19. Emmanuel Thibault, 2000. "Existence of equilibrium in an OLG model with production and altruistic preferences," Economic Theory, Springer, vol. 15(3), pages 709-715.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Bishnu, Monisankar, 2013. "Linking consumption externalities with optimal accumulation of human and physical capital and intergenerational transfers," Staff General Research Papers 36385, Iowa State University, Department of Economics.
  2. Francisco Alvarez-Cuadrado & Ngo Van Long, 2012. "Envy and Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 949-973, 09.
  3. Phu Nguyen-Van & Thi Kim Cuong Pham, 2008. "Endogenous Fiscal Policies, Environmental Quality, and Status-Seeking Behavior," Working Papers 29, Development and Policies Research Center (DEPOCEN), Vietnam.
  4. Emmanuelle Augeraud-Veron & Mauro Bambi, 2012. "Does habit formation always increase the agents' desire to smooth consumption?," Discussion Papers 12/12, Department of Economics, University of York.
  5. Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2013. "Deviant Generations, Ricardian Equivalence, and Growth Cycles," Staff General Research Papers 12939, Iowa State University, Department of Economics.
  6. Takeo Hori, 2011. "The effects of consumption externalities in an R&D-based growth model with endogenous skilled and unskilled labor supply," Journal of Economics, Springer, vol. 102(1), pages 29-55, January.
  7. Alvarez-Cuadrado, Francisco & El-Attar, Mayssun, 2012. "Income Inequality and Saving," IZA Discussion Papers 7083, Institute for the Study of Labor (IZA).
  8. Pierre Pestieau & Emmanuel Thibault, 2012. "Love thy children or money," Economic Theory, Springer, vol. 50(1), pages 31-57, May.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:aub:autbar:658.05. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Xavier Vila).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.