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The distribution of wealth: an agent-based approach to examine the effect of estate taxation, skill inheritance, and the Carnegie Effect

Author

Listed:
  • Christopher W. Kulp

    (Lycoming College)

  • Michael Kurtz

    (Lycoming College)

  • Charles Hunt

    (Lycoming College)

  • Matthew Velardi

    (Lycoming College)

Abstract

Wealth inequality has been a topic of recent interest worldwide. One means to address wealth inequality may be through estate taxation. To study the effect of estate taxes on the distribution of wealth, we examine a simple agent-based model where agents live, earn income, die, and pass an inheritance onto the next generation. Taxed estate wealth is then distributed among the population in various ways. We find that estate taxation can be a means of lowering wealth inequality. Furthermore, we examine the effect of skill inheritance and the “Carnegie Effect” on the distribution of wealth. We find that skill inheritance leads to increased inequality in our model, and inclusion of the “Carnegie Effect” (a reduction in labor effort/participation by individuals receiving large bequests) lowers the accumulation of wealth of not only those receiving large bequests but also of low-wealth individuals through a reduction in tax revenue available for redistribution. As such, we show estate taxation up to around 40% increases both efficiency (total wealth) and wealth equity in the modeled economy by encouraging work effort and generating revenue for greater redistribution.

Suggested Citation

  • Christopher W. Kulp & Michael Kurtz & Charles Hunt & Matthew Velardi, 2023. "The distribution of wealth: an agent-based approach to examine the effect of estate taxation, skill inheritance, and the Carnegie Effect," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(2), pages 397-415, April.
    • Handle: RePEc:spr:jeicoo:v:18:y:2023:i:2:d:10.1007_s11403-022-00372-7
    DOI: 10.1007/s11403-022-00372-7
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    More about this item

    Keywords

    Estate tax; Inequality; Carnegie Effect; Agent-based model; Inheritance;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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