Incentive Effects of Inheritances and Optimal Estate Taxation

13 Pages Posted: 2 Feb 2013

See all articles by Wojciech Kopczuk

Wojciech Kopczuk

Columbia University - Graduate School of Arts and Sciences - Department of Economics; Columbia University - School of International & Public Affairs (SIPA); National Bureau of Economic Research (NBER)

Date Written: February 2013

Abstract

I consider nonlinear taxation of income and bequests with a joy-of-giving bequest motive and explicitly characterize the estate tax rate structure that maximizes social planner's welfare function. The solution trades off correction of externality from giving and discouraging effort of children due to income effect generated by bequests. The analysis shows that optimality of a positive tax on bequests in this context rests on the strength of the effect of bequests on behavior of future generations, and suggests that inheritance rather than estate tax is better suited to implement the corresponding policy.

Suggested Citation

Kopczuk, Wojciech, Incentive Effects of Inheritances and Optimal Estate Taxation (February 2013). NBER Working Paper No. w18747, Available at SSRN: https://ssrn.com/abstract=2210767

Wojciech Kopczuk (Contact Author)

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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New York, NY 10027
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Columbia University - School of International & Public Affairs (SIPA)

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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