Capital income taxation when inherited wealth is not observable

Helmuth Cremer, Pierre Pestieau and Jean Rochet

No 2001020, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper extends the Atkinson-Stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics: productive ability and inherited wealth. Bequests are motivated by the "joy of giving". A child's inheritance is a random variable with a probability distribution that depends on his parent's investment in a "bequest technology". Public borrowing is assumed and implies the modified golden rule. We study the optimal tax policy when two instruments are available: a non-linear (wage) income tax and a proportional tax on capital income. We show that the second instrument ought, in general, to be used but that the tax rate is not necessarily positive. However, a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability.

Date: 2001-04
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Capital income taxation when inherited wealth is not observable (2003)
Working Paper: Capital income taxation when inherited wealth is not observable (2003)
Working Paper: Capital Income Taxation when Inherited wealth is not Observable (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2001020

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