NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Failure of Ricardian Equivalence Under Progressive Wealth Taxation

Andrew B. Abel

NBER Working Paper No. 1983 (Also Reprint No. r0862)
Issued in July 1986
NBER Program(s):   PE

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.

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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

 
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