In this paper we study theoretically the dynamics of the distribution of wealth in an Overlapping Generation economy with bequest and various forms of redistributive taxation. We characterize the transitional dynamics of the wealth distribution and as well as the stationary distribution. We show that, in our economy, the stationary wealth distribution is a power law, a Pareto distribution in particular. Wealth is less concentrated (the Gini coefficient is lower) for both higher capital income taxes and estate taxes, but the marginal effect of capital income taxes is much stronger than the effect of estate taxes. Finally, we characterize optimal redistributive taxes with respect to an utilitarian social welfare measure. Social welfare is maximized short of minimal wealth inequality and with zero estate taxes.
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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
368.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:368
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Find related papers by JEL classification: E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
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