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The Crucial Role of Social Welfare Criteria and Individual Heterogeneity for Optimal Inheritance Taxation

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  • García-Miralles Esteban

    (Department of Economics, University of Copenhagen, and Center for Economic Behavior and Inequality (CEBI), Øster Farimagsgade 5, 1353Copenhagen K, Denmark)

Abstract

This paper extends the calibrations of Piketty and Saez (2013. “A Theory of Optimal Inheritance Taxation.” Econometrica 81 (5): 1851–86) to unveil the importance of the assumed social welfare criteria and its interplay with individual heterogeneity on optimal inheritance taxation. I calibrate the full social optimal tax rate and find that it is highly sensitive to the assumed social welfare criteria. The optimal tax rate ranges from negative (under a utilitarian criterion) to positive and large (even assuming joy of giving motives). A decreasing marginal utility of consumption does not affect the results qualitatively, given the underlying distribution of wealth and income. I also calibrate the optimal tax rate by percentile of the distribution of bequest received, as in Piketty and Saez, but accounting for heterogeneity in wealth and labor income. This leads to significant variation in the optimal tax rate among zero-bequest receivers, contrary to their finding of a constant tax rate.

Suggested Citation

  • García-Miralles Esteban, 2020. "The Crucial Role of Social Welfare Criteria and Individual Heterogeneity for Optimal Inheritance Taxation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(2), pages 1-16, April.
    • Handle: RePEc:bpj:bejeap:v:20:y:2020:i:2:p:16:n:13
    DOI: 10.1515/bejeap-2019-0274
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    1. Kindermann, Fabian & Mayr, Lukas & Sachs, Dominik, 2020. "Inheritance taxation and wealth effects on the labor supply of heirs," Journal of Public Economics, Elsevier, vol. 191(C).
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    More about this item

    Keywords

    optimal inheritance taxation; social welfare function; wealth inequality;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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