Estate Taxation with Altruism Heterogeneity

Emmanuel Farhi, Iván Werning

NBER Working Paper No. 18792
Issued in February 2013
NBER Program(s):   EFG   PE

We develop a theory of optimal estate taxation in a model where bequest inequality is driven by differences in parental altruism. We show that a wide range of results are possible, from positive taxes to subsidies, depending on redistributive objectives implicit in the cardinal specification of utility and social welfare functions. We propose a normalization that is helpful in classifying these different possibilities. We isolate cases where the optimal policy bans negative bequests and taxes positive bequests, features present in most advanced countries.

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Acknowledgments

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