The Impact of Bequest Taxation on Wealth Inequality - Theory and Evidence

Berenice Anne Neumann and Niklas Scheuer

No 2024-05, Research Papers in Economics from University of Trier, Department of Economics

Abstract: We study the effect of bequests and their taxation on wealth inequality. We allow for random death and birth in a continuous-time, dynastic framework. Individuals behave optimally and accumulate wealth over their lifetime. Bequests above a tax exemption threshold are taxed according to a fixed rate. We derive a stochastic differential equation modeling dynastic wealth and obtain an analytical expression for the coefficient of variation. By calibrating our model to German wealth data, we utilize these analytical results to project empirical wealth inequality across various bequest tax rates and tax exemption thresholds. Most notably, our results indicate that a combination of a high tax exemption threshold paired with a high bequest tax rate reduces wealth inequality strongest when considering revenue-neutral alterations.

Keywords: wealth; bequest; taxation; wealth inequality; analytical solution (search for similar items in EconPapers)
JEL-codes: D31 E21 H24 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2024
New Economics Papers: this item is included in nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:trr:wpaper:202405

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