Working Paper: NBER ID: w12600
Authors: Emmanuel Farhi; Ivan Werning
Abstract: For an economy with altruistic parents facing productivity shocks, the optimal estate taxation is progressive: fortunate parents should face lower net returns on their inheritances. This progressivity reflects optimal mean reversion in consumption, which ensures that a long-run steady state exists with bounded inequality - avoiding immiseration.
Keywords: No keywords provided
JEL Codes: E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal estate taxation is progressive (H21) | fortunate parents face a higher marginal tax rate on their bequests (H24) |
| optimal estate taxation is progressive (H21) | consumption mean reverts across generations (D15) |
| without estate taxation (H24) | perfect inheritability of welfare (D69) |
| estate taxes are implemented (H24) | intergenerational transmission of welfare becomes less than one-for-one (D15) |
| progressivity of estate taxes (H24) | consumption and welfare remain bounded (D11) |
| progressivity of estate taxation (H24) | insurance against risks associated with parental fortunes (G52) |