Estate taxation with warm-glow altruism
This article examines the properties of the optimal fiscal policy in an economy with warm-glow altruism (utility interdependence) and heterogeneous individuals. We propose a new efficiency concept, D-efficiency, that considers an implicit constraint in the act of giving: donors cannot bequeath to donees more than their existing resources. Considering this constraint, we show that the market equilibrium is not socially efficient. The efficient level of bequest transfers can be implemented by the market with estate and labor-income subsidies and a capital-income tax. In the absence of lump-sum taxation, the government faces a trade-off between minimizing distortions and eliminating external effects. The implied tax policy differs from Pigovian taxation since the government's ability to correct the external effects is limited. Finally, we show that the efficiency-equity trade-off does not affect the qualitative features of the optimal distortionary fiscal policy.
|Date of creation:||2009|
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrés Erosa & Martin Gervais, 1998.
"Optimal Taxation in Life-Cycle Economies,"
UWO Department of Economics Working Papers
9812, University of Western Ontario, Department of Economics.
- Cremer, Helmuth & Pestieau, Pierre, 2006.
"Wealth transfer taxation: a survey of the theoretical literature,"
Handbook on the Economics of Giving, Reciprocity and Altruism,
- CREMER, Helmuth & PESTIEAU, Pierre, "undated". "Wealth transfer taxation: a survey of the theoretical literature," CORE Discussion Papers RP 1874, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Chari, V.V. & Kehoe, Patrick J., 1999.
"Optimal fiscal and monetary policy,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745
- William G. Gale & John Karl Scholz, 1994.
"Intergenerational Transfers and the Accumulation of Wealth,"
Journal of Economic Perspectives,
American Economic Association, vol. 8(4), pages 145-160, Fall.
- William G. Gale & John Karl Scholz, 1991. "Intergenerational Transfers and the Accumulation of Wealth," UCLA Economics Working Papers 624, UCLA Department of Economics.
- W. G. Gale & J. K. Scholz, "undated". "Intergenerational transfers and the accumulation of wealth," Institute for Research on Poverty Discussion Papers 1019-93, University of Wisconsin Institute for Research on Poverty.
- Philippe Michel & Pierre Pestieau, 2004.
"Fiscal Policy in an Overlapping Generations Model with Bequest-as-Consumption,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 6(3), pages 397-407, 08.
- MICHEL, Philippe & PESTIEAU, Pierre, "undated". "Fiscal policy in an overlapping generations model with bequest-as-consumption," CORE Discussion Papers RP 1988, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Carlos Garriga, 2001.
"Optimal Fiscal Policy in Overlapping Generations Models,"
Working Papers in Economics
66, Universitat de Barcelona. Espai de Recerca en Economia.
- Carlos Garriga-Calvet, 2000. "Optimal Fiscal Policy in Overlapping Generations Models," Econometric Society World Congress 2000 Contributed Papers 1772, Econometric Society.
- MICHEL, Philippe & PESTIEAU, Pierre, 1998. "Fiscal policy when individuals differ regarding to altruism and labor supply," CORE Discussion Papers 1998040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Lucas, Robert Jr. & Stokey, Nancy L., 1983.
"Optimal fiscal and monetary policy in an economy without capital,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 55-93.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Mariacristina De Nardi, 2004.
"Wealth Inequality and Intergenerational Links,"
Review of Economic Studies,
Oxford University Press, vol. 71(3), pages 743-768.
- Mariacristina De Nardi, 2002. "Wealth inequality and intergenerational links," Staff Report 314, Federal Reserve Bank of Minneapolis.
- Mariacristina deNardi, 2000. "Wealth Inequality and Intergenerational Links," Econometric Society World Congress 2000 Contributed Papers 0547, Econometric Society.
- Laitner, John, 1993. "Intergenerational and interhousehold economic links," Handbook of Population and Family Economics, in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 5, pages 189-238 Elsevier.
- Laurence J. Kotlikoff & Lawrence H. Summers, 1986. "The Contribution of Intergenerational Transfers to Total Wealth: A Reply," NBER Working Papers 1827, National Bureau of Economic Research, Inc.
- Davies, James B. & Shorrocks, Anthony F., 2000. "The distribution of wealth," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 11, pages 605-675 Elsevier.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2009-004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If references are entirely missing, you can add them using this form.