The distribution of wealth and redistributive policies

Jess Benhabib and Alberto Bisin

No 368, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper we study theoretically the dynamics of the distribution of wealth in an Overlapping Generation economy with bequest and various forms of redistributive taxation. We characterize the transitional dynamics of the wealth distribution and as well as the stationary distribution. We show that, in our economy, the stationary wealth distribution is a power law, a Pareto distribution in particular. Wealth is less concentrated (the Gini coefficient is lower) for both higher capital income taxes and estate taxes, but the marginal effect of capital income taxes is much stronger than the effect of estate taxes. Finally, we characterize optimal redistributive taxes with respect to an utilitarian social welfare measure. Social welfare is maximized short of minimal wealth inequality and with zero estate taxes.

Keywords: wealth; distribution (search for similar items in EconPapers)
JEL-codes: C6 E6 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (18)

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