Working Paper: NBER ID: w13160
Authors: Marco Cagetti; Mariacristina De Nardi
Abstract: We study the effects of abolishing estate taxation in a quantitative and realistic framework that includes the key features that policy makers are worried about: business investment, borrowing constraints, estate transmission, and wealth inequality. We use our model to estimate effective estate taxation. We consider various tax instruments to reestablish fiscal balance when abolishing estate taxation. We find that abolishing estate taxation would not generate large increases in inequality, and would, in some cases, generate increases in aggregate output and capital accumulation. If, however, the resulting revenue shortfall were financed through increased income or consumption taxation, the immensely rich, and the old among those in particular, would experience a welfare gain, at the cost of welfare losses for the vast majority of the population.
Keywords: Estate Taxation; Entrepreneurship; Wealth Inequality
JEL Codes: D31; E21; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| abolition of estate tax (H24) | wealth inequality (D31) |
| abolition of estate tax (H24) | aggregate output (E10) |
| abolition of estate tax (H24) | capital accumulation (E22) |
| increased income or consumption taxation post-estate tax abolition (H24) | welfare distribution among households (H53) |