Progressive Estate Taxation
Name
Farhi-2010-PROGRESSIVE ESTATE TAXATION.pdf
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247.12 KB
Format
Adobe PDF
Checksum (MD5)
9d6256cfd18111070efb8c0476d3262a
Author(s)
Werning, Ivan
Farhi, Emmanuel
Date Issued
May 2010
Journal
Quarterly Journal of Economics
Publisher
MIT Press
Citation
Farhi, Emmanuel, and Iván Werning. “Progressive Estate Taxation.” Quarterly Journal of Economics 125.2 (2010): 635-673. © 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Version
Final published version
Abstract
We present a model with altruistic parents and heterogeneous productivity. We derive two key properties for optimal estate taxation. First, the estate tax should be progressive, so that parents leaving a higher bequest face a lower net return on bequests. Second, marginal estate taxes should be negative, so that all parents face a marginal subsidy on bequests. Both properties can be implemented with a simple nonlinear tax on bequests, levied separately from the income tax. These results apply to other intergenerational transfers, such as educational investments, and are robust to endogenous fertility choices. Both estate or inheritance taxes can implement the optimal allocation, but we show that the inheritance tax has some advantages. Finally, when we impose an ad hoc constraint requiring marginal estate taxes to be nonnegative, the optimum features a zero tax up to an exemption level, and a progressive tax thereafter.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1162/qjec.2010.125.2.635
