Wealth Taxation and Life Expectancy

Antonio Bellofatto

No 1278, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: I study the optimal taxation of wealth in a dynastic economy with heterogeneous mortality risk, and various sources of wealth accumulation (including savings and bequests). Working individuals are indexed by skills which are private information. Skills not only determine earning abilities but also correlate with survival probability, so that more productive agents on average live longer. My analysis points to the longevity gradient as a crucial determinant for optimal wealth taxation, both from a theoretical and from a quantitative angle. In particular, due to longevity variations, savings should be marginally taxed in expectation, while bequests received early in life should be marginally subsidized on average. When calibrated to U.S. data, such forces are commensurate with the actual levels of wealth taxation in a sample of developed countries.

Date: 2019
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge and nep-rmg
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