The Incidence of a Tax on Pure Rent in an Altruistic Overlapping Generations Economy

Feldstein (1977) questioned the classical proposition which attributed to Ricard (call the Ricardian Classical Proposition), that an increase in the land rent tax lowers the price of land by the capitalized value of the tax and thus the landowners bear the entire burden of the tax, in an overlapping generations economy with fixed land but with flexible supply of capital, whereas Calvo, Kotlikoff, and Rodriguez (1979) pointed out that Feldstein's finding no longer remains valid in the equivalent economy except that an intergenerational altruistic bequest motive is perfectly operative. The purpose of this paper is to demonstrate that the counterargument of Calvo et al. is not necessarily valid despite the presence of operative bequest motive, if either a selfish motive to leave bequests, inheritance taxes, or property income taxes is introduced into their model. The key reason for the failure of the Ricardian Classical Proposition is the nonlinearity of either the utility function with respect to the amount of bequests, or of the tax rate with respect to the size of inheritances or property income.