Wealth Inequality, Family Background, and Estate Taxation

41 Pages Posted: 30 Mar 2015

See all articles by Mariacristina De Nardi

Mariacristina De Nardi

University College London, Economics Dpt.; Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER) - Public Economics

Fang Yang

Louisiana State University, Baton Rouge

Date Written: March 2015

Abstract

This paper generates two main contributions. First, it provides a new theory of wealth inequality that merges two empirically relevant forces generating inequality: bequest motives and inheritance of ability across generations; and an earnings process that allows for more earnings risk for the richest. Second, it uses the resulting calibrated framework to study the effects of changing estate taxation. Increasing the estate tax reduces the wealth concentration in the hands of the richest few and the economic advantage of being born to a rich and super-rich family, at the cost of reduced aggregate capital and output. However, all of these effects are quite small. In contrast, increasing estate taxation can generate a significant welfare gain to a newborn under the veil of ignorance, but this comes at a large welfare cost for the super-rich.

Suggested Citation

De Nardi, Mariacristina and Yang, Fang, Wealth Inequality, Family Background, and Estate Taxation (March 2015). NBER Working Paper No. w21047. Available at SSRN: https://ssrn.com/abstract=2586900

Mariacristina De Nardi (Contact Author)

University College London, Economics Dpt. ( email )

Gower Street
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United Kingdom

Federal Reserve Bank of Chicago ( email )

Research Department
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HOME PAGE: http://www.nber.org/~denardim

National Bureau of Economic Research (NBER) - Public Economics ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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HOME PAGE: http://www.nber.org/~denardim

Fang Yang

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

HOME PAGE: http://faculty.bus.lsu.edu/fyang/

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