Estate Taxation, Entrepreneurship, and Wealth
We study the effects of abolishing estate taxation in a quantitative and realistic framework that includes the key features that policy makers are worried about: business investment, borrowing constraints, estate transmission, and wealth inequality. We use our model to estimate effective estate taxation. We consider various tax instruments to reestablish fiscal balance when abolishing estate taxation. We find that abolishing estate taxation would not generate large increases in inequality, and would, in some cases, generate increases in aggregate output and capital accumulation. If, however, the resulting revenue shortfall were financed through increased income or consumption taxation, the immensely rich, and the old among those in particular, would experience a welfare gain, at the cost of welfare losses for the vast majority of the population.
We gratefully acknowledge financial support from NSF grants (respectively) SES-0318014 and SES-0317872. De Nardi also thanks the University of Minnesota Grant-in-Aid for funding. We are grateful to Gadi Barlevy, Marco Bassetto, Luca Benzoni, Jeff Campbell, Robert E. Lucas, Ellen McGrattan, Kulwant Rai, Ivan Werning, an editor, three anonymous referees, and to seminar participants at many institutions for helpful comments. The views herein are those of the authors and not necessarily those of the Federal Reserve Bank of Chicago, The Federal Reserve Board, the Federal Reserve System, or the National Science Foundation. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Marco Cagetti & Mariacristina De Nardi, 2009. "Estate Taxation, Entrepreneurship, and Wealth," American Economic Review, American Economic Association, vol. 99(1), pages 85-111, March. citation courtesy of