Taxing bequests and consumption in the steady state

Johann Brunner () and Susanne Pech ()

No 2013-15, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: We study the optimal tax system in a dynamic model where differences in wages induce differences in inheritances, and the transition from parent ability to child ability is described by a Markov chain. We characterize expected inheritances in the steady state and show that the Atkinson-Stiglitz result on the redundancy of indirect taxes does not hold in this framework. In particular, given an optimal income tax, a bequest tax as well as a consumption tax are potential instruments for additional redistribution. For the bequest tax the sign of the overall welfare e¤ect depends on the reaction of bequests and on inequality aversion, while for the consumption tax the sign is always positive because the distorting e¤ect is outweighed by the induced increase in wealth accumulation. A necessary condition for a positive welfare effect is the empirically validated relation that more able individuals on average have more able parents than less able individuals.

Pages: 37 pages
Date: 2013-10
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.econ.jku.at/papers/2013/wp1315.pdf (application/pdf)

Related works:
Working Paper: Taxing bequests and consumption in the steady state (2017)
Working Paper: Taxing Bequests and Consumption in the Steady State (2013)
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:jku:econwp:2013_15

Access Statistics for this paper

More papers in Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria Contact information at EDIRC.
Bibliographic data for series maintained by René Böheim ().