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Fair inheritance taxation

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  • Decerf, Benoit

    (World Bank)

  • Maniquet, François

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

We study the optimal taxation of bequests in a version of the model of Piketty and Saez (2013). Agents have heterogeneous preferences over their consumption and the net-of-tax bequest received by their heir. The bequest left by an individual depends on both her degree of altruism and the bequest received from her parents. First, we study two principles at the heart of the debates on taxing inheritances: 1) children should not be penalized by the lack of altruism of their parents; 2) parents should be free to choose their bequests. Only one social welfare function (SWF) satisfies these two principles, together with Pareto efficiency and a separability principle. Second, we study the shape of the inheritance tax scheme that maximizes this SWF. We show that, in the aggregate, the inheritance tax must collect money (redistributed through a non-negative demogrant). Moreover, small bequests cannot be taxed (they can potentially be subsidized), while bequests larger than that of the most altruistic individuals who did not receive bequests from their parents should be taxed as much as efficiency permits.

Suggested Citation

  • Decerf, Benoit & Maniquet, François, 2021. "Fair inheritance taxation," LIDAM Discussion Papers CORE 2021011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2021011
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    References listed on IDEAS

    as
    1. Emmanuel Farhi & Iván Werning, 2010. "Progressive Estate Taxation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(2), pages 635-673.
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