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

See all articles by Johann K. Brunner

Johann K. Brunner

University of Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Susanne Pech

Johannes Kepler University Linz - Department of Economics

Multiple version iconThere are 2 versions of this paper

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

Brunner, Johann K. and Pech, Susanne, Optimum Taxation of Inheritances (April 2008). Johannes Kepler University of Linz, Economics Working Paper No. 0806, Available at SSRN: https://ssrn.com/abstract=1129229 or http://dx.doi.org/10.2139/ssrn.1129229

Johann K. Brunner (Contact Author)

University of Linz - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Susanne Pech

Johannes Kepler University Linz - Department of Economics ( email )

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A-4040 Linz, 4040
Austria