Accidental Bequests: A Curse for the Rich and a Boon for the Poor

ECONPUBBLICA Working Paper No. 147

34 Pages Posted: 4 Mar 2012

See all articles by Helmuth Cremer

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Firouz Gahvari

University of Illinois at Urbana-Champaign - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Multiple version iconThere are 3 versions of this paper

Date Written: July 1, 2010

Abstract

When accidental bequests signal otherwise unobservable individual characteristics such as productivity and longevity, the tax administration should partition the populationinto two groups: One consisting of people who do not receive an inheritance and the other of those who do. The first tagged group gets a second-best tax à la Mirrlees; the second group a first-best tax schedule. The solution implies that receiving an inheritance makes high-ability types worse off and low-ability types better off. High-abilityindividuals will necessarily face a bequest tax of more than 100%, while low-ability types face a bequest tax that can be smaller as well as larger than 100% and may even be negative.

Keywords: H21

JEL Classification: accidental bequests, estate tax, tagging, first best, second best

Suggested Citation

Cremer, Helmuth and Gahvari, Firouz and Pestieau, Pierre, Accidental Bequests: A Curse for the Rich and a Boon for the Poor (July 1, 2010). ECONPUBBLICA Working Paper No. 147, Available at SSRN: https://ssrn.com/abstract=2014649 or http://dx.doi.org/10.2139/ssrn.2014649

Helmuth Cremer (Contact Author)

University of Toulouse (GREMAQ & IDEI) ( email )

Toulouse, 31000
France
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Firouz Gahvari

University of Illinois at Urbana-Champaign - Department of Economics ( email )

313 David Kinley Hall, 1407 West Gregory Drive
Urbana, IL 61801
United States

HOME PAGE: http://www.economics.illinois.edu/people/fgahvari

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

Poschingerstr. 5
Munich, DE-81679
Germany

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics ( email )

Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
B-4000 Liege, 4000
Belgium
+32 4 366 3108 (Phone)
+32 4 366 3106 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Vopie Roman Pays
Louvain la Neuve
Belgium

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