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Pareto-Improving Bequest Taxation

Volker Grossmann () and Panu Poutvaara ()

No 2277, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Altruistic parents may transfer resources to their offspring by providing education, and by leaving bequests. We show that in the presence of wage taxation, a small bequest tax may improve efficiency in an overlapping-generations framework with only intended bequests, by enhancing incentives of parents to invest in their children’s education. This result holds even if the wage tax rate is held constant when introducing bequest taxation. We also calculate an optimal mix of wage and bequest taxes with alternative parameter combinations. In all cases, the optimal wage tax rate is clearly higher than the optimal bequest tax rate, but the latter is generally positive when the required government revenue in the economy is sufficiently high.

Keywords: bequest taxation; bequests; education; Pareto improvement (search for similar items in EconPapers)
JEL-codes: H21 H31 D64 I21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-knm, nep-pbe and nep-pub
Date: 2006-08
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Published in: International Tax and Public Finance, 2009, 16 (5), 647-669

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Journal Article: Pareto-improving bequest taxation (2009) Downloads
Working Paper: Pareto-improving bequest taxation (2009)
Working Paper: Pareto-Improving Bequest Taxation (2005) Downloads
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