We study the effects of abolishing estate taxation in a quantitative and realistic framework that includes the key features that policy makers are worried about: business investment, borrowing constraints, estate transmission, and wealth inequality. We use our model to estimate effective estate taxation. We consider various tax instruments to reestablish fiscal balance when abolishing estate taxation. We find that abolishing estate taxation would not generate large increases in inequality, and would, in some cases, generate increases in aggregate output and capital accumulation. If, however, the resulting revenue shortfall were financed through increased income or consumption taxation, the immensely rich, and the old among those in particular, would experience a welfare gain, at the cost of welfare losses for the vast majority of the population.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13160.
Length: Date of creation: Jun 2007 Date of revision: Handle: RePEc:nbr:nberwo:13160
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Find related papers by JEL classification: D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth H2 - Public Economics - - Taxation, Subsidies, and Revenue
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Davies, James B. & Shorrocks, Anthony F., 2000.
"The distribution of wealth,"
Handbook of Income Distribution,
in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 11, pages 605-675
Elsevier.
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Lillard, Lee A & Willis, Robert J, 1978.
"Dynamic Aspects of Earning Mobility,"
Econometrica,
Econometric Society, vol. 46(5), pages 985-1012, September.
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