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Optimum taxation of inheritances

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Author Info
Johann K. Brunner
Susanne Pech

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Abstract

We incorporate the fact that inheritances create a second distinguishing characteristic of individuals, in addition to earning abilities, into an optimum income taxation model with bequests motivated by joy of giving. We show that a tax on inheritances and a uniform tax on all expenditures including bequests are equivalent and that either is desirable, according to an intertemporal social objective, if on average high-able individuals have larger inherited endowments than low-able. We demonstrate that such a situation results as the outcome of a process with stochastic transition of abilities over generations, if all descendants are more probable to have their parent’s ability rank than any other.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2008-06.

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Date of creation: Apr 2008
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Handle: RePEc:jku:econwp:2008_06

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Keywords: inheritance tax;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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  1. Louis Kaplow, 2000. "A Framework for Assessing Estate and Gift Taxation," NBER Working Papers 7775, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Bossmann, Martin & Kleiber, Christian & Walde, Klaus, 2007. "Bequests, taxation and the distribution of wealth in a general equilibrium model," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1247-1271, August. [Downloadable!] (restricted)
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  3. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Blackwell Publishing, vol. 49(4), pages 637-43, October. [Downloadable!] (restricted)
  4. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-29, June.
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  6. Cremer, Helmuth & Pestieau, Pierre, 2006. "Wealth transfer taxation: a survey of the theoretical literature," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier. [Downloadable!] (restricted)
  7. James B. Davies & Peter J. Kuhn, 1991. "A Dynamic Model of Redistribution, Inheritance, and Inequality," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 324-44, May. [Downloadable!] (restricted)
  8. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June. [Downloadable!] (restricted)
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  10. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 2000. " Redistribution with Unobservable Bequests: A Case for Taxing Capital Income," Scandinavian Journal of Economics, Blackwell Publishing, vol. 102(2), pages 253-67, June. [Downloadable!] (restricted)
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  11. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March. [Downloadable!] (restricted)
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  12. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35. [Downloadable!]
  15. Kessler, Denis & Masson, Andre, 1989. "Bequest and Wealth Accumulation: Are Some Pieces of the Puzzle Missing?," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 141-52, Summer. [Downloadable!] (restricted)
  16. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, vol. 87(11), pages 2475-2490, October. [Downloadable!] (restricted)
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