An Alternative Rationale for the Necessity of an Inheritance Tax

In this paper, I present a rationale for an inheritance tax from the point of view of economic rents derived from ranking value and preference in the state of simultaneous optimality of all heterogeneous households. Because there are family lines that have different probabilities of persistently obtaining rents, these rents should be sufficiently taxed to achieve optimality of all heterogeneous households. Income taxes alone cannot completely remove the negative effects of these rents on optimality because it is difficult to distinguish between types of income. Therefore, an inheritance tax is necessary to complement income taxes. An important point is that the inheritance tax is not a tax on capital income—it is a tax on rents. Because sustainable heterogeneity indicates optimality in a heterogeneous population, this type of inheritance tax does not distort the economy. Rather, unless the negative effects of these rents are sufficiently removed by an inheritance tax, the economy is distorted and most households cannot achieve optimality.