IDEAS home Printed from https://ideas.repec.org/a/spr/portec/v8y2009i2p99-118.html
   My bibliography  Save this article

Estate taxation with warm-glow altruism

Author

Listed:
  • Carlos Garriga
  • Fernando Sánchez-Losada

    ()

Abstract

This article examines the properties of the optimal fiscal policy in an economy with warm-glow altruism (utility interdependence) and heterogeneous individuals. We propose a new efficiency concept, D-efficiency, that considers an implicit constraint in the act of giving: donors cannot bequeath to donees more than their existing resources. Considering this constraint, we show that the market equilibrium is not socially efficient. The efficient level of bequest transfers can be implemented by the market with estate and labor-income subsidies and a capital-income tax. In the absence of lump-sum taxation, the government faces a trade-off between minimizing distortions and eliminating external effects. The implied tax policy differs from Pigovian taxation since the government's ability to correct the external effects is limited. Finally, we show that the efficiency-equity trade-off does not affect the qualitative features of the optimal distortionary fiscal policy.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Carlos Garriga & Fernando Sánchez-Losada, 2009. "Estate taxation with warm-glow altruism," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 8(2), pages 99-118, August.
  • Handle: RePEc:spr:portec:v:8:y:2009:i:2:p:99-118
    DOI: 10.1007/s10258-009-0040-1
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10258-009-0040-1
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. William G. Gale & John Karl Scholz, 1994. "Intergenerational Transfers and the Accumulation of Wealth," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 145-160, Fall.
    2. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
    3. Laurence J. Kotlikoff & Lawrence H. Summers, 1986. "The Contribution of Intergenerational Transfers to Total Wealth: A Reply," NBER Working Papers 1827, National Bureau of Economic Research, Inc.
    4. Cremer, Helmuth & Pestieau, Pierre, 2006. "Wealth transfer taxation: a survey of the theoretical literature," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    5. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745 Elsevier.
    6. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    7. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
    8. 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.
    9. Philippe Michel & Pierre Pestieau, 2004. "Fiscal Policy in an Overlapping Generations Model with Bequest-as-Consumption," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 397-407, August.
    10. Carlos Garriga-Calvet, 2000. "Optimal Fiscal Policy in Overlapping Generations Models," Econometric Society World Congress 2000 Contributed Papers 1772, Econometric Society.
    11. MICHEL, Philippe & PESTIEAU, Pierre, 1998. "Fiscal policy when individuals differ regarding to altruism and labor supply," CORE Discussion Papers 1998040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Laitner, John, 1993. "Intergenerational and interhousehold economic links," Handbook of Population and Family Economics,in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 5, pages 189-238 Elsevier.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Garriga, Carlos & Sánchez-Losada, Fernando, 2009. "Indirect taxation and the welfare effects of altruism on the optimal fiscal policy," Economic Modelling, Elsevier, vol. 26(6), pages 1365-1374, November.
    2. Bullard, James & Garriga, Carlos & Waller, Christopher J., 2012. "Demographics, redistribution, and optimal inflation," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 419-440.
    3. repec:fip:fedlps:y:2012:i:may30 is not listed on IDEAS

    More about this item

    Keywords

    Optimal taxation; Altruism; Dynamic general equilibrium; H21; H30; E62;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:portec:v:8:y:2009:i:2:p:99-118. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.