Working Paper: NBER ID: w18747
Authors: Wojciech Kopczuk
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.
Keywords: inheritance; estate tax; optimal taxation
JEL Codes: E21; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bequests (D64) | children's effort (J13) |
| bequests (D64) | social welfare (I38) |
| taxation of estates (H24) | children's effort (J13) |
| optimal bequest tax formula (H21) | social welfare (I38) |
| bequest taxation (H24) | externality from giving (D64) |
| income effect from bequests (D15) | optimal tax rate (H21) |