Working Paper: NBER ID: w9188
Authors: Wojciech Kopczuk
Abstract: Because estate tax liability usually depends on how long one lives, it implicitly provides annuity income. In the absence of annuity markets, lump-sum estate taxation may be used to achieve the first-best solution for individuals with a sufficiently strong bequest motive. Calculations of the annuity embedded in the U.S. estate tax show that people with $10 million of assets may be effectively receiving more than $100,000 a year financed at actuarially fair rates by their tax payments. According to my calibrations, the insurance effect reduces the marginal cost of funds (MCF) for the estate tax by as much as 30% and the resulting MCF is within the range of estimates for the marginal cost of funds for the income tax.
Keywords: No keywords provided
JEL Codes: H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Estate Tax (H24) | Annuity Income (G52) |
| Estate Tax Payments (H24) | Marginal Cost of Funds (MCF) (E51) |
| Estate Tax Payments (H24) | Wealth Management and Consumption Decisions (E21) |
| Estate Tax (H24) | Redistribution of Resources (D30) |
| Estate Tax (H24) | Improved Welfare Outcomes (I39) |
| Accidental Bequests (D14) | Inefficiencies (D61) |
| Estate Tax (H24) | Mitigation of Inefficiencies from Accidental Bequests (D15) |