Wealth Inequality, Family Background, and Estate Taxation

Mariacristina De Nardi and Fang Yang

No 21047, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper generates two main contributions. First, it provides a new theory of wealth inequality that merges two empirically relevant forces generating inequality: bequest motives and inheritance of ability across generations; and an earnings process that allows for more earnings risk for the richest. Second, it uses the resulting calibrated framework to study the effects of changing estate taxation. Increasing the estate tax reduces the wealth concentration in the hands of the richest few and the economic advantage of being born to a rich and super-rich family, at the cost of reduced aggregate capital and output. However, all of these effects are quite small. In contrast, increasing estate taxation can generate a significant welfare gain to a newborn under the veil of ignorance, but this comes at a large welfare cost for the super-rich.

JEL-codes: D1 D14 D31 E21 E6 H2 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
Note: PE
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Citations: View citations in EconPapers (18)

Published as Mariacristina De Nardi & Fang Yang, 2016. "Wealth inequality, family background, and estate taxation," Journal of Monetary Economics, vol 77, pages 130-145.

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Journal Article: Wealth inequality, family background, and estate taxation (2016)
Working Paper: Wealth Inequality, Family Background, and Estate Taxation (2015)
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