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Socially Optimal Wealth Inequality

Author

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  • Reichlin, Pietro

Abstract

I discuss two alternative notions of social welfare (utilitarian and self-enforcing) in a dynastic model with heterogeneous and persistent degrees of parental altruism and evaluate the implied levels of consumption inequality. Then, I study a decentralization of planning optima in a competitive equilibrium where the only source of inequality arises from intergenerational wealth transmission and I show that the self-enforcing criterion implies a negative tax rate on the less altruistic individuals' capital income.

Suggested Citation

  • Reichlin, Pietro, 2018. "Socially Optimal Wealth Inequality," CEPR Discussion Papers 12873, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12873
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    References listed on IDEAS

    as
    1. Simon H. Boserup & Wojciech Kopczuk & Claus T. Kreiner, 2016. "The Role of Bequests in Shaping Wealth Inequality: Evidence from Danish Wealth Records," American Economic Review, American Economic Association, vol. 106(5), pages 656-661, May.
    2. Wojciech Kopczuk & Joseph P. Lupton, 2007. "To Leave or Not to Leave: The Distribution of Bequest Motives," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 207-235.
    3. Per Krusell & Anthony Smith & Joachim Hubmer, 2015. "The historical evolution of the wealth distribution: A quantitative-theoretic investigation," 2015 Meeting Papers 1406, Society for Economic Dynamics.
    4. Andrew Atkeson & Robert E. Lucas, 1992. "On Efficient Distribution With Private Information," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 427-453.
    5. Jellal, Mohamed & Wolff, Francois-Charles, 2002. "Cultural evolutionary altruism: theory and evidence," European Journal of Political Economy, Elsevier, vol. 18(2), pages 241-262, June.
    6. Bossmann, Martin & Kleiber, Christian & Walde, Klaus, 2007. "Bequests, taxation and the distribution of wealth in a general equilibrium model," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1247-1271, August.
    7. Cordoba, Juan-Carlos, 2008. "U.S. inequality: Debt constraints or incomplete asset markets?," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 350-364, March.
    8. Gang Sun, 2013. "Consumption Inequality and Discount Rate Heterogeneity," Discussion Paper Series, School of Economics and Finance 201318, School of Economics and Finance, University of St Andrews.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Capital taxation; inequality; Wealth;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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