An Alternative Rationale for the Necessity of an Inheritance Tax

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, I present a rationale for an inheritance tax from the point of view of economic rents derived from ranking value and preference in the state of simultaneous optimality of all heterogeneous households. Because there are family lines that have different probabilities of persistently obtaining rents, these rents should be sufficiently taxed to achieve optimality of all heterogeneous households. Income taxes alone cannot completely remove the negative effects of these rents on optimality because it is difficult to distinguish between types of income. Therefore, an inheritance tax is necessary to complement income taxes. An important point is that the inheritance tax is not a tax on capital income—it is a tax on rents. Because sustainable heterogeneity indicates optimality in a heterogeneous population, this type of inheritance tax does not distort the economy. Rather, unless the negative effects of these rents are sufficiently removed by an inheritance tax, the economy is distorted and most households cannot achieve optimality.

Keywords: Economic rent; Income tax; Inheritance tax; Inequality; Ranking value and preference; Sustainable heterogeneity (search for similar items in EconPapers)
JEL-codes: D63 H21 H24 (search for similar items in EconPapers)
Date: 2020-05-02
New Economics Papers: this item is included in nep-pbe and nep-pub
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