Optimal Tax Policies for Social Mobility when Wealth Transfers and Education Investments Matter

Pierre Pestieau and Maria Racionero
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Pierre Pestieau: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2025013, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We consider a society where social mobility is influenced by parental wealth transfers and education investments. Specifically, the educational investments capture the time parents devote to the education of their children. We show that, in the absence of government intervention, the market equilibrium results in a level of upward social mobility lower than that in an ideal first-best scenario. Given the challenge of observing individual characteristics, we characterize the second-best solution achievable through the implementation of non-linear taxation. We consider two alternative government objectives: a weighted utilitarian criterion and a Rawlsian criterion. Additionally, we explore the implications of two alternative informational assumptions: whether educational investments are observable or non-observable.

Keywords: Social mobility; non-linear taxation; inheritance taxation (search for similar items in EconPapers)
JEL-codes: H21 H31 H52 (search for similar items in EconPapers)
Pages: 17
Date: 2025-06-01
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