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Optimal Bequest Taxation and Capital Subsidies Over the Life-Cycle

Author

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  • Hakki Yazici

    (Sabanci University)

  • Nicola Pavoni

    (Bocconi University)

Abstract

We study optimal bequest and capital taxation over the life-cycle in an OLG model. In this environment, we show that the efficient allocation can be implemented via age-dependent linear taxes/subsidies on capital income and bequests. First, as long as the degree of self-control problem is weakly decreasing with age, optimal bequest taxes are always strictly positive, independent of the assumptions about the degrees of sophistication over the life cycle. Second, we find that capital (savings) should typically be subsidized. In particular, we show that when the degree of self-control problem is weakly increasing, capital subsidies should increase with age, independent of the assumptions about sophistication over the life cycle.

Suggested Citation

  • Hakki Yazici & Nicola Pavoni, 2011. "Optimal Bequest Taxation and Capital Subsidies Over the Life-Cycle," 2011 Meeting Papers 820, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:820
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