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Optimum taxation of inheritances

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  • Johann K. Brunner
  • Susanne Pech

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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  1. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  2. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 2001. "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(4), pages 637-43, October.
  4. Louis Kaplow, 2000. "A Framework for Assessing Estate and Gift Taxation," NBER Working Papers 7775, National Bureau of Economic Research, Inc.
  5. 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.
  6. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  7. CREMER, Helmuth & PESTIEAU, Pierre, . "Wealth transfer taxation: a survey of the theoretical literature," CORE Discussion Papers RP -1874, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, . "Redistribution with unobservable bequests: a case for taxing capital income," CORE Discussion Papers RP -1457, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Christian Kleiber & Martin Sexauer & Klaus Waelde, 2006. "Bequests, Taxation and the Distribution of Wealth in a General Equilibrium Model," CESifo Working Paper Series 1723, CESifo Group Munich.
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  11. 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, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
  12. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  13. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March.
  14. 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.
  15. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
  16. 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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Cited by:
  1. Johann K. Brunner & Susanne Pech, 2012. "Optimal Taxation of Bequests in a Model with Initial Wealth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1368-1392, December.
  2. Johann K. Brunner, 2010. "Die Erbschaftssteuer im Modell der optimalen Besteuerung," NRN working papers 2010-18, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  3. Johann Brunner & Paul Eckerstorfer & Susanne Pech, 2013. "Optimal taxes on wealth and consumption in the presence of tax evasion," Journal of Economics, Springer, Springer, vol. 110(2), pages 107-124, October.
  4. Johann K. Brunner & Susanne Pech, 2011. "Optimal taxation of wealth transfers when bequests are motivated by joy of giving," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2011-12, Department of Economics, Johannes Kepler University Linz, Austria.

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