Working Paper: NBER ID: w21047
Authors: Mariacristina De Nardi; Fang Yang
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.
Keywords: No keywords provided
JEL Codes: D1; D14; D31; E21; E6; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing estate taxation (H24) | Reduces wealth concentration (D30) |
| Increasing estate taxation (H24) | Reduces economic advantage for the wealthy (H29) |
| Increasing estate taxation (H24) | Increases welfare gains for newborns (D69) |
| Increasing estate taxation (H24) | Impacts lifetime utility for individuals from wealthy backgrounds (D15) |