Optimal Taxation When Children’s Abilities Depend on Parents’ Resources

Alexander Gelber () and Matthew Weinzierl ()

National Tax Journal, 2016, vol. 69, issue 1, 11-40

Abstract: Empirical research suggests that parents, and therefore the tax policy that affects them, can have a significant effect on their children’s future earnings abilities. We take a first step toward characterizing how this intergenerational link matters for tax policy design. We find that the utilitarian welfare-maximizing policy in this context would be more redistributive toward low-income parents than under current U.S. tax policy. The additional income under such a policy would increase the probability that low-income children move up the economic ladder, and we estimate that it would generate an aggregate welfare gain equivalent to 1.75 percent of lifetime consumption.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:69:y:2016:i:1:p:11-40

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