Optimum Taxation of Inheritances
Johannes Kepler University of Linz, Economics Working Paper No. 0806
38 Pages Posted: 5 May 2008 Last revised: 9 Jun 2008
There are 2 versions of this paper
Optimum Taxation of Inheritances
Date Written: April 2008
Abstract
We incorporate the fact that inheritances create a second distinguishing characteristic of individuals, in addition to earning abilities, into an optimum income taxation model with bequests motivated by joy of giving. We show that a tax on inheritances and a uniform tax on all expenditures including bequests are equivalent and that either is desirable, according to an intertemporal social objective, if on average high-able individuals have larger inherited endowments than low-able. We demonstrate that such a situation results as the outcome of a process with stochastic transition of abilities over generations, if all descendants are more probable to have their parent's ability rank than any other.
Keywords: Optimum taxation, taxation of inheritances, bequests, estate tax
JEL Classification: H21, H24
Suggested Citation: Suggested Citation
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