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Pareto-Improving Bequest Taxation

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Author Info
Volker Grossmann ()
Panu Poutvaara ()

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Abstract

Altruistic parents may transfer resources to their offspring by providing education, and by leaving bequests. We show that in the presence of wage taxation, a small bequest tax may improve efficiency in an overlapping-generations framework with only intended bequests, by enhancing incentives of parents to invest in their children’s education. This result holds even if the wage tax rate is held constant when introducing bequest taxation. We also calculate an optimal mix of wage and bequest taxes with alternative parameter combinations. In all cases, the optimal wage tax rate is clearly higher than the optimal bequest tax rate, but the latter is generally positive when the required government revenue in the economy is sufficiently high.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1515.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1515

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Related research
Keywords: bequest taxation; bequests; education; Pareto improvement;

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Find related papers by JEL classification:
D64 - Microeconomics - - Welfare Economics - - - Altruism
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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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.:
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  1. Christian Kleiber & Martin Sexauer & Klaus Wälde, 2006. "Bequests, Taxation and the Distribution of Wealth in a General Equilibrium Model," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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