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An Alternative Rationale for the Necessity of an Inheritance Tax

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  • Harashima, Taiji

Abstract

In this paper, I present a rationale for an inheritance tax from the point of view of economic rents derived from ranking value and preference in the state of simultaneous optimality of all heterogeneous households. Because there are family lines that have different probabilities of persistently obtaining rents, these rents should be sufficiently taxed to achieve optimality of all heterogeneous households. Income taxes alone cannot completely remove the negative effects of these rents on optimality because it is difficult to distinguish between types of income. Therefore, an inheritance tax is necessary to complement income taxes. An important point is that the inheritance tax is not a tax on capital income—it is a tax on rents. Because sustainable heterogeneity indicates optimality in a heterogeneous population, this type of inheritance tax does not distort the economy. Rather, unless the negative effects of these rents are sufficiently removed by an inheritance tax, the economy is distorted and most households cannot achieve optimality.

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  • Harashima, Taiji, 2020. "An Alternative Rationale for the Necessity of an Inheritance Tax," MPRA Paper 100015, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:100015
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    References listed on IDEAS

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    1. 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.
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    More about this item

    Keywords

    Economic rent; Income tax; Inheritance tax; Inequality; Ranking value and preference; Sustainable heterogeneity;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • 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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