On the Taxation of Private Transfers
This essay considers the appropriate conceptual framework for assessing the taxation of private transfers to individuals. Although it is conventional to emphasize the role of estate and gift taxation or inheritance taxation in redistributing income from the rich to the poor, the revenue effects of transfer taxation, and its distortionary effect on labor supply and savings, it is suggested in line with some recent work that the dominant focus should be on positive and negative externalities attributable to giving. The fundamental reason is that transfer tax reform can be combined with adjustments to other aspects of the fiscal system, notably the income tax, so as to keep constant most effects other than externalities.
Finn M.W. Caspersen and Household International Professor of Law and Economics, Harvard Law School, and Research Associate, National Bureau of Economic Research. I am grateful to Wojciech Kopczuk for extensive discussions pertaining to the final topic addressed in subsection III.B.4 and to the John M. Olin Center for Law, Economics, and Business at Harvard Law School for financial support. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.