Premature Deaths, Accidental Bequests and Fairness

While little agreement exists regarding the taxation of bequests in general, there is a widely held view that accidental bequests should be subject to a confiscatory tax. We reexamine the optimal taxation of accidental bequests in an economy where individuals care about what they leave to their offspring in case of premature death. We show that, whereas the conventional 100 % tax view holds under the utilitarian social criterion, it does not hold under the ex post egalitarian criterion (giving priority to the unlucky short-lived). From the perspective of compensating the short-lived, it is optimal not to tax, but to subsidize accidental bequests. We examine the robustness of those results in a dynamic OLG model of wealth accumulation, and show that, whereas the sign of the optimal tax depends on the form of the joy of giving motive, it remains true that the 100 % tax view does not hold under the ex post egalitarian social criterion. Finally, we provide a second-best egalitarian argument for taxing bequests at a rate that is increasing with the age of the deceased.