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Optimal bequests taxation in the steady state

Author

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  • George Casamatta

    (Laboratoire Lieux, Identités, eSpaces et Activités (LISA))

Abstract

We consider an infinite-horizon economy populated by two types of individuals, some individuals being more productive than others. Individuals live one period and are altruistic toward their children. Assuming that the allocation received by a given individual depends only on his type and the one of his parent, we first determine the second-best steady state allocation and then study the optimal bequest and labor income tax functions, that are assumed to be separable. We first show that the second-best is not implementable with such tax schedules. We then demonstrate that it may be desirable to tax large bequests (and to subsidize low bequests), provided that individuals are sufficiently altruistic and the less productive individuals are sufficiently numerous. The taxation of large bequests is however not always part of the optimal solution. A numerical example suggests that no taxation of bequests is needed under moderate altruism, while large bequests should be subsidized when individuals are poorly altruistic.

Suggested Citation

  • George Casamatta, 2020. "Optimal bequests taxation in the steady state," Working Papers 016, Laboratoire Lieux, Identités, eSpaces et Activités (LISA).
    • Handle: RePEc:lia:wpaper:016
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    File URL: https://umrlisa.univ-corse.fr/RePEc/lia/pdf/WorkingPaper16.pdf
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    More about this item

    Keywords

    bequests; taxation; steady state;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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