Working Paper: NBER ID: w1983
Authors: Andrew B. Abel
Abstract: Although the Ricardian Equivalence Theorem holds under a linear estate tax schedule, it fails to hold under a nonlinear estate tax schedule. In a representative consumer economy, a temporary lump-sum tax increase reduces contemporaneous consumption. If different consumers face different marginal estate tax rates because they leave bequests of different sizes, a lump-sum tax increase redistributes resources from consumers in low marginal estate tax brackets to consumers in high marginal estate tax brackets; aggregate consumption mey rise, fall, or remain unchanged. These \ndepartures from Ricerdian Equivalence hold more generally under any nonlinear tax on saving, wealth or income accruing to wealth.
Keywords: Ricardian equivalence; progressive taxation; wealth taxation; lump-sum taxes; consumer behavior
JEL Codes: H24; H31; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| temporary lump-sum tax increase (H29) | reduction in contemporaneous consumption (D15) |
| increasing marginal estate tax rates (H24) | reduction in contemporaneous consumption (D15) |
| nonlinear tax on saving, wealth, or income (H31) | failure of Ricardian equivalence (H39) |
| marginal tax rates increase (H31) | consumption decreases (E21) |