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

How Do Income and Bequest Taxes Affect Income Inequality? The Role of Parental Transfers

Contents:

Author Info

Registered author(s):

    Abstract

    This paper studies how income and bequest taxes affect income inequality. We firstly explore this relationship empirically using a panel of 20 OECD countries from 1980 to 2008. The data shows that an increase of income taxation tends to strengthen income inequality, while the inequality effect of bequest taxation is ambiguous. In order to explain these findings, we develop an overlapping generation model with inter-generational transfers. Altruistic parents face thejoint decision of making educational investment and leaving financial bequests. A change in tax structure will affect both asset allocation decision and wealth transmission, which in turn governs the dynamics of human capital accumulation and determines the net tax effects on equilibrium income distribution. We show these tax effects on income inequality analytically, and examine aggregate effects with numerical experiments. We find that the predictions of our model are consistent with data patterns.

    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://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2013_10.pdf
    File Function: First version, 2013
    Download Restriction: no

    Bibliographic Info

    Paper provided by Research Institute, International University of Japan in its series Working Papers with number EMS_2013_10.

    as in new window
    Length: 40 pages
    Date of creation: Aug 2013
    Date of revision:
    Handle: RePEc:iuj:wpaper:ems_2013_10

    Contact details of provider:
    Postal: 777 Kokusai-cho, Minami Uonuma0-shi, Niigata 949-7277 JAPAN
    Phone: 81+(0)25-779-1112
    Fax: 81+(0)25-779-1187
    Web page: http://www.iuj.ac.jp/research/
    More information through EDIRC

    Related research

    Keywords: Tax structure; Human capital; Bequests; Income inequality; Intergenerational transfers;

    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. Fölster, Stefan & Henrekson, Magnus, 1997. "Growth and the Public Sector: A Critique of the Critics," Working Paper Series 492, Research Institute of Industrial Economics, revised 10 Jun 1998.
    2. Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2001. "Asset Pricing with Idiosyncratic Risk and Overlapping Generations," CEPR Discussion Papers 3065, C.E.P.R. Discussion Papers.
    3. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    4. Gary S. Becker & Nigel Tomes, . "Human Capital and the Rise and Fall of Families," University of Chicago - Population Research Center 84-10, Chicago - Population Research Center.
    5. B. Douglas Bernheim & Robert J. Lemke & John Karl Scholz, 2001. "Do Estate and Gift Taxes Affect the Timing of Private Transfers?," NBER Working Papers 8333, National Bureau of Economic Research, Inc.
    6. Emmanuel Farhi & Ivan Werning, 2006. "Progressive Estate Taxation," NBER Working Papers 12600, National Bureau of Economic Research, Inc.
    7. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2010. "Fiscal policy, composition of intergenerational transfers, and income distribution," CAMA Working Papers 2010-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Grossman, Volker & Poutvaara, Panu, 2009. "Pareto-improving bequest taxation," Munich Reprints in Economics 20438, University of Munich, Department of Economics.
    9. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
    10. Luis M. Viceira, 2001. "Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income," Journal of Finance, American Finance Association, vol. 56(2), pages 433-470, 04.
    11. Lutz Hendricks, 2001. "How Do Taxes Affect Human Capital? The Role of Intergenerational Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 695-735, July.
    12. Ignacio Palacios-Huerta, 2001. "An Empirical Analysis of the Risk Properties of Human Capital Returns," Working Papers 2001-10, Brown University, Department of Economics.
    13. Shinichi Nishiyama, 2002. "Bequests, Inter Vivos Transfers, and Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 892-931, October.
    14. Castellacci, Fulvio & Natera, Jose Miguel, 2011. "A new panel dataset for cross-country analyses of national systems, growth and development (CANA)," MPRA Paper 28376, University Library of Munich, Germany.
    15. Singh, Aarti, 2008. "Human capital risk in life-cycle economies," MPRA Paper 10292, University Library of Munich, Germany.
    16. Sarte, Pierre-Daniel G., 1997. "Progressive taxation and income inequality in dynamic competitive equilibrium," Journal of Public Economics, Elsevier, vol. 66(1), pages 145-171, October.
    17. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    18. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
    19. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April.
    20. Steven J. Haider & Kathleen M. McGarry, 2012. "Parental Investments in College and Later Cash Transfers," NBER Working Papers 18485, National Bureau of Economic Research, Inc.
    21. De Gregorio, Jose & Lee, Jong-Wha, 2002. "Education and Income Inequality: New Evidence from Cross-Country Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(3), pages 395-416, September.
    22. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    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:iuj:wpaper:ems_2013_10. 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: (Kazumi Imai, Office of Academic Affairs).

    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.