Pareto-Improving Bequest Taxation

Volker Grossmann and Panu Poutvaara

No 2277, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Altruistic parents may transfer resources to their offspring by providing education, and by leaving bequests. We show that in the presence of wage taxation, a small bequest tax may improve efficiency in an overlapping-generations framework with only intended bequests, by enhancing incentives of parents to invest in their children’s education. This result holds even if the wage tax rate is held constant when introducing bequest taxation. We also calculate an optimal mix of wage and bequest taxes with alternative parameter combinations. In all cases, the optimal wage tax rate is clearly higher than the optimal bequest tax rate, but the latter is generally positive when the required government revenue in the economy is sufficiently high.

Keywords: bequest taxation; bequests; education; Pareto improvement (search for similar items in EconPapers)
JEL-codes: D64 H21 H31 I21 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2006-08
New Economics Papers: this item is included in nep-dge, nep-knm, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: International Tax and Public Finance, 2009, 16 (5), 647-669

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Related works:
Journal Article: Pareto-improving bequest taxation (2009)
Working Paper: Pareto-improving bequest taxation (2009)
Working Paper: Pareto-Improving Bequest Taxation (2005)
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