Fair Inheritance Taxation
This paper studies the optimal taxation of bequests in a model in which agents have heterogeneous preferences over their consumption and the net-of-tax bequest received by their heir. The bequest left by an individual depends on both her degree of...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/977991634065405485/Fair-Inheritance-Taxation http://hdl.handle.net/10986/36390 |
| Summary: | This paper studies the optimal
taxation of bequests in a model in which agents have
heterogeneous preferences over their consumption and the
net-of-tax bequest received by their heir. The bequest left
by an individual depends on both her degree of altruism and
the bequest received from her parents. First, the paper
studies two principles that are at the heart of the debates
on taxing inheritances: (1) children should not be penalized
by the lack of altruism of their parents, and (2) parents
should be free to choose their bequests. Only one social
welfare function satisfies these two principles, together
with Pareto efficiency and a separability principle. Second,
the paper studies the shape of the inheritance tax scheme
that maximizes this social welfare function. It shows that
in the aggregate, the inheritance tax must collect money
(redistributed through a non-negative demogrant). Moreover,
small bequests cannot be taxed (they can potentially be
subsidized), while bequests that are larger than those of
the most altruistic individuals who did not receive bequests
from their parents should be taxed as much as efficiency permits. |
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