Wealth inequality, intergenerational links and estate taxation
Empirical studies have shown that, for many countries, the distribution of wealth is much more concentrated than the one of labor earnings. We do not have yet a satisfactory model that can generate enough concentration in wealth from the one for earnings. I construct a computable general equilibrium model with overlapping generations in which parents and children are linked by bequests and earnings within families. I show that bequests are important to explain the emergence of large estates that characterize the top of the wealth distribution and that the introduction of a bequest motive generates lifetime saving profiles more consistent with the data. Moreover, allowing for earnings persistence within families generates an even more concentrated wealth distribution. A cross-country comparison between the U.S. and Sweden shows that intergenerational linkages are important also in economies where redistribution programs are more prominent and there is less inequality.
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