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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- Auerbach, Alan J., 1985.
"The theory of excess burden and optimal taxation,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127
- Stefan Homburg, 2004.
"A New Approach to Optimal Commodity Taxation,"
CESifo Working Paper Series
1231, CESifo Group Munich.
- 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 261-78, June.
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