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Inheritance Taxation in a Model with Intergenerational Time Transfers

Pascal Belan () and Erwan Moussault ()

The B.E. Journal of Economic Analysis & Policy, 2020, vol. 20, issue 1, 19

Abstract: We consider a two-period overlapping generation model with rational altruism à la Barro, where time transfers and bequests are available to parents. Starting from a steady state where public spending is financed through taxation on capital income and labor income, we analyze a tax reform that consists in a shift of the tax burden from capital income tax toward inheritance tax. In the standard Barro model with no time transfer and inelastic labor supply, such a policy decreases steady-state welfare. In our setting, inheritance tax modifies parents’ trade-off between time transfers and bequests. We identify situations where the tax reform increases welfare for all generations. Welfare improvement mainly depends on the magnitude of the effect of higher time transfers on the labor supply of the young.

Keywords: family transfers; altruism; time transfers; inheritance tax (search for similar items in EconPapers)
JEL-codes: D64 H22 H24 J22 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/bejeap-2018-0367

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