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Redistribution with unobservable bequests: a case for taxing capital income

Author

Listed:
  • BOADWAY, Robin

    () (Queen's University)

  • MARCHAND, Maurice

    () (Center for Operations Research and Econometrics (CORE) and Institut d'Administration et de Gestion (IAG), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • PESTIEAU, Pierre

    () (CREPP, Université de Liège and Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

This paper addresses the question of the optimal taxation of labour and interest income in an overlapping generations model with two unobservable characteristics, ability and inheritance. We assume realistically that saving can only be taxed anonymously, whereas the tax on labour earnings can be individualized and made non-linear. In such a setting, we show that a with- holding tax on interest income along with a non-linear tax on labour income is desirable. The role of interest income taxation is to indirectly tax inherited wealth.

Suggested Citation

  • BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, 1997. "Redistribution with unobservable bequests: a case for taxing capital income," CORE Discussion Papers 1997070, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1997070
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    Keywords

    Capital income taxation; tax evasion; bequest;

    JEL classification:

    • 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
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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