The Failure of Ricardian Equivalence Under Progressive Wealth Taxation
NBER Working Paper No. 1983 (Also Reprint No. r0862)
Although the Ricardian Equivalence Theorem holds under a linear estate tax schedule, it fails to hold under a nonlinear estate tax schedule. In a representative consumer economy, a temporary lump-sum tax increase reduces contemporaneous consumption. If different consumers face different marginal estate tax rates because they leave bequests of different sizes, a lump-sum tax increase redistributes resources from consumers in low marginal estate tax brackets to consumers in high marginal estate tax brackets; aggregate consumption mey rise, fall, or remain unchanged. These
departures from Ricerdian Equivalence hold more generally under any nonlinear tax on saving, wealth or income accruing to wealth.
Document Object Identifier (DOI): 10.3386/w1983
Published: Abel, Andrew B. "The Failure of Ricardian Equivalence Under Progressive Wealth Taxation." Journal of Public Economics, Vol. 30, No. 1, (June 1986), pp . 117-128. citation courtesy of