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Estate taxation, entrepreneurship, and wealth

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  • Marco Cagetti
  • Mariacristina De Nardi

Abstract

We study the effects of abolishing estate taxation in a quantitative and realistic framework that includes the key features that policy makers are worried about: business investment, borrowing constraints, estate transmission, and wealth inequality. We use our model to estimate effective estate taxation. We consider various tax instruments to reestablish fiscal balance when abolishing estate taxation. We find that abolishing estate taxation would not generate large increases in inequality, and would, in some cases, generate increases in aggregate output and capital accumulation. If, however, the resulting revenue shortfall were financed through increased income or consumption taxation, the immensely rich, and the old among those in particular, would experience a welfare gain, at the cost of welfare losses for the vast majority of the population.

Suggested Citation

  • Marco Cagetti & Mariacristina De Nardi, 2007. "Estate taxation, entrepreneurship, and wealth," Working Paper Series WP-07-08, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-07-08
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    References listed on IDEAS

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    Keywords

    Taxation ; 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
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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