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Optimum taxation of bequests in a model with initial wealth

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  • Johann K. Brunner
  • Susanne Pech

Abstract

We formulate an optimum-taxation model, where parents leave bequests to their descendants for altruistic reasons. In contrast to the standard model, individuals differ not only in earning abilities, but also in initial (inherited) wealth. In this model a redistributive motive for an inheritance tax - which is equivalent to a uniform tax on all expenditures - arises, given that initial wealth increases with earning abilities. Its introduction increases intertemporal social welfare or has an ambiguous effect, depending on whether the bequeathing generation can adjust their behaviour and whether the external effect related to altruism is accounted for in the social objective.

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Bibliographic Info

Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2010-01.

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Length: 36 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:jku:econwp:2010_01

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Keywords: Optimum taxation; taxation of bequests;

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References

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  1. Johann K. Brunner & Susanne Pech & Paul Eckerstorfer, 2010. "Optimal Taxes on Wealth and Consumption in the Presence of Tax Evasion," NRN working papers 2010-03, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  2. Cremer, Helmuth & Pestieau, Pierre, 2006. "Wealth transfer taxation: a survey of the theoretical literature," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
  3. John Laitner & F. Thomas Juster, 1993. "New evidence on altruism: a study of TIAA-CREF retirees," Discussion Paper / Institute for Empirical Macroeconomics 86, Federal Reserve Bank of Minneapolis.
  4. Wilhelm, M.O., 1990. "Bequest Behavior And The Effect Of Heirs' Earnings: Testing The Altruistic Model Of Bequests," Papers 9-90-12, Pennsylvania State - Department of Economics.
  5. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
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  7. Johann K. Brunner & Susanne Pech, 2011. "Optimal taxation of wealth transfers when bequests are motivated by joy of giving," Economics working papers 2011-12, Department of Economics, Johannes Kepler University Linz, Austria.
  8. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Johann K. Brunner & Susanne Pech, 2008. "Optimum taxation of inheritances," Economics working papers 2008-06, Department of Economics, Johannes Kepler University Linz, Austria.
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  16. W. G. Gale & J. K. Scholz, . "Intergenerational transfers and the accumulation of wealth," Institute for Research on Poverty Discussion Papers 1019-93, University of Wisconsin Institute for Research on Poverty.
  17. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 2001. "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers 2001020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  19. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 637-43, October.
  20. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, vol. 83(2), pages 217-230, February.
  21. Webley,Paul & Robben,Henry & Elffers,Henk & Hessing,Dick (ed.), 2010. "Tax Evasion," Cambridge Books, Cambridge University Press, number 9780521130615.
  22. Gary Solon, 2002. "Cross-Country Differences in Intergenerational Earnings Mobility," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 59-66, Summer.
  23. Mikhail Golosov & Aleh Tsyvinski & Ivan Werning, 2007. "New Dynamic Public Finance: A User's Guide," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 317-388 National Bureau of Economic Research, Inc.
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Cited by:
  1. Johann K. Brunner & Susanne Pech, 2013. "Taxing Bequests and Consumption in the Steady State," CESifo Working Paper Series 4453, CESifo Group Munich.
  2. Brunner Johann K. & Pech Susanne, 2012. "Optimal Taxation of Wealth Transfers When Bequests are Motivated by Joy of Giving," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-22, March.
  3. 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.
  4. Johann K. Brunner, 2012. "The Bequest Tax as Long-Term Care Insurance," CESifo Working Paper Series 3901, CESifo Group Munich.

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