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 may rise, fall, or remain unchanged. These departures from Ricardian Equivalence hold more generally under any nonlinear tax on saving, wealth or income accruing to wealth.
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Bibliographic InfoPaper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 22-86.
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Other versions of this item:
- Abel, Andrew B., 1986. "The failure of Ricardian equivalence under progressive wealth taxation," Journal of Public Economics, Elsevier, vol. 30(1), pages 117-128, June.
- Andrew B. Abel, 1987. "The Failure of Ricardian Equivalence Under Progressive Wealth Taxation," NBER Working Papers 1983, National Bureau of Economic Research, Inc.
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