Income Taxes, Death Taxes, and Optimal Consumption-Leisure-Savings-Choice
An optimal taxation approach is employed to compare a proportional income tax with a death tax within a simple lifetime-cycle-model. The impact of both taxes is discussed concerning consumption, leisure, savings, and inheritance. It is shown that the income tax generally leaves the tax payer with a higher residual utility than does the death tax, if the same present value of tax receipts is supposed. Moreover, the death tax is much more limited concerning the maximum possible tax receipts than is the income tax. It is argued that there is a double dividend of heritages because of positive consumption externalities, which should not be destroyed by undue taxation. Taking that into account within a steady-state OLG- model, the death tax turns out to be the least efficient tax at all.
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- Stefan Homburg, 2006.
"A New Approach to Optimal Commodity Taxation,"
FinanzArchiv: Public Finance Analysis,
Mohr Siebeck, Tübingen, vol. 62(3), pages 323-338, September.
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- Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
- Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June. Full references (including those not matched with items on IDEAS)
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