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Accidental Bequests: A Curse for the Rich and a Boon for the Poor

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  • Helmuth Cremer
  • Firouz Gahvari
  • Pierre Pestieau

Abstract

When accidental bequests signal otherwise unobservable individual characteristics such as productivity and longevity, the tax administration should partition the population into two groups: One consisting of people who do not receive an inheritance and the other of those who do. The first tagged group gets a second-best tax à la Mirrlees; the second group a first-best tax schedule. The solution implies that receiving an inheritance makes high-ability types worse off and low-ability types better off. High-ability individuals will necessarily face a bequest tax of more than 100%, while low-ability types face a bequest tax that can be smaller as well as larger than 100% and may even be negative.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3094.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3094

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Keywords: accidental bequests; estate tax; tagging; first best; second best;

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  1. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 2001. "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers 2001020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  3. Antoine Bommier, 2006. "Uncertain Lifetime And Intertemporal Choice: Risk Aversion As A Rationale For Time Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1223-1246, November.
  4. Robin BOADWAY & Pierre PESTIEAU, 2006. "Tagging and redistributive taxation," Annales d'Economie et de Statistique, ENSAE, issue 83-84, pages 123-147.
  5. 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, vol. 111(6), pages 1318-1341, December.
  6. MICHEL, Philippe & PESTIEAU, Pierre, 2002. "Wealth transfer taxation with both accidental and planned bequests," CORE Discussion Papers 2002059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Blumkin, Tomer & Sadka, Efraim, 2004. "Estate taxation with intended and accidental bequests," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 1-21, January.
  8. Pritchett, Lant & Summers, Lawrence H., 1993. "Wealthier is healthier," Policy Research Working Paper Series 1150, The World Bank.
  9. Helmuth Cremer & Firouz Gahvari & Jean-Marie Lozachmeur, 2010. "Tagging and Income Taxation: Theory and an Application," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 31-50, February.
  10. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
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