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Pareto-Improving Bequest Taxation

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Author Info
Volker Grossmann () (University of Fribourg, CESifo and IZA Bonn)
Panu Poutvaara () (University of Helsinki, CESifo and IZA Bonn)

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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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2277.

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Length: 35 pages
Date of creation: Aug 2006
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Handle: RePEc:iza:izadps:dp2277

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Related research
Keywords: bequest taxation bequests education Pareto improvement

Other versions of this item:

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

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References listed on IDEAS
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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 GmbH. [Downloadable!]
    Other versions:
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