How Do Income and Bequest Taxes Affect Income Inequality? The Role of Parental Transfers

Chih-Chin Ho (), Ching-Yang Lin () and Cheng-Tao Tang ()
Additional contact information
Chih-Chin Ho: National Cheng Kung University, http://english.web.ncku.edu.tw/
Ching-Yang Lin: International University of University, http://www.iuj.ac.jp/
Cheng-Tao Tang: University of New South Wales, http://www.unsw.edu.au/

No EMS_2013_10, Working Papers from Research Institute, International University of Japan

Abstract: This paper studies how income and bequest taxes affect income inequality. We firstly explore this relationship empirically using a panel of 20 OECD countries from 1980 to 2008. The data shows that an increase of income taxation tends to strengthen income inequality, while the inequality effect of bequest taxation is ambiguous. In order to explain these findings, we develop an overlapping generation model with inter-generational transfers. Altruistic parents face thejoint decision of making educational investment and leaving financial bequests. A change in tax structure will affect both asset allocation decision and wealth transmission, which in turn governs the dynamics of human capital accumulation and determines the net tax effects on equilibrium income distribution. We show these tax effects on income inequality analytically, and examine aggregate effects with numerical experiments. We find that the predictions of our model are consistent with data patterns.

Keywords: Tax structure; Human capital; Bequests; Income inequality; Intergenerational transfers (search for similar items in EconPapers)
JEL-codes: D64 H21 H30 I24 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-08
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2013_10.pdf First version, 2013 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iuj:wpaper:ems_2013_10

Access Statistics for this paper

More papers in Working Papers from Research Institute, International University of Japan 777 Kokusai-cho, Minami Uonuma0-shi, Niigata 949-7277 JAPAN. Contact information at EDIRC.
Bibliographic data for series maintained by Kazumi Imai, Office of Academic Affairs ().