We introduce intergenerational transfers into a general equilihrium life-cycle model in order to explain observed levels of wealth heterogeneity. In our overlapping generations model, heterogenous agents face uncertain lifetime and leave both accidental and voluntary bequests to their cinldren. Furthermore, agents face stochastic employment opportunities. The model is calibrated with regard to the characteristics of the US economy. Our resuits indicate that hequests onl account for a sniall proportion of ohserved wealth heterogeneitv. The introduction of an inheritance tax increases both welfare are measured by the average value of the newborn and equality of the wealth distribution. Preliminary versions of this paper have been presented at conference on 'Intergenerational transfers, taxes and the distribution of wealth´ in Uppsala 1999 and the Econoinetric Societv European Meetirig in Santiago dc Compostela 1999. We would like to thank Michael Kaganovieli. John Laitner, James Smith, Frank Stafford, and Carl Cristian von Weizsäcker for comments on earlier versions of the paper. All remaining errors are ours.
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number
25.
Find related papers by JEL classification: D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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