Estate taxes, consumption externalities, and altruism

Jaime Alonso-Carrera (), Jordi Caballé and Xavier Raurich ()

Journal of Public Economics, 2008, vol. 92, issue 7, pages 1751-1764

Abstract: We study how the introduction of consumption externalities affects the optimality of the dynamic equilibrium in an economy displaying dynastic altruism. When the bequest motive is inoperative consumption externalities affect the intertemporal margin between young and old consumption and thus modify the intertemporal path of aggregate consumption and capital. The optimal tax policy that solves this intertemporal suboptimality consists of a tax on capital income and a pay-as-you-go social security system. The latter solves the excess of capital accumulation due to the inoperativeness of the bequest motive and the former solves the suboptimal allocation of consumption due to consumption externalities. When the bequest motive is operative consumption externalities only cause an intratemporal misallocation of consumption but do not affect the optimality of the capital stock level. This suboptimal allocation of consumption implies in turn that the path of bequest deviates also from optimality. The optimal tax policy in this case consists of an estate tax and a capital income tax.

Date: 2008
View citations in EconPapers

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V76 ... 7c021f16f8b1dfaf062e
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:pubeco:v:92:y:2008:i:7:p:1751-1764

Access Statistics for this article

Journal of Public Economics is edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Series data maintained by Heidi Boesdal ().