 Estate taxes, consumption externalities, and altruismJaime Alonso-Carrera (), Jordi Caballe () and Xavier Raurich Journal of Public Economics, 2008, vol. 92, issue 7, 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 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://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 currently edited by R. Boadway and J. Poterba More articles in Journal of Public Economics from Elsevier |
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