Sustainable Forestry: Timber Bequests, Future Generations and Optimal Tax Policy

This paper analyzes harvesting and timber bequest behavior in a two-period overlapping generations model where the government uses site productivity, yield and inheritance taxation. The ceteris paribus effects of forest and inheritance taxes are derived first, then the paper discusses the optimal design of forest and inheritance taxes by assuming that intergenerational externalities are either absent or operative. In the absence of intergenerational externalities, it is optimal to use only the site productivity tax, and not to introduce yield and inheritance taxes at all. In the presence of intergenerational externalities the situation changes. The paper demonstrates that the externality can be internalized by introducing either a yield tax or an inheritance subsidy, or both. If the government is able to use both at the same time, it is desirable to use the yield tax to 'punish' excessive harvesting and an inheritance subsidy to 'bribe' to give bequests.     

Tax avoidance and intra-family transfers

We study how taxes on intra-family transfers (bequests and gifts) affect parents' transfers to their children. Our focus is on the incentives for tax avoidance. These issues are important for families and their welfare, as well as for governments and their possibilities of raising revenue from transfer taxes. Using a theoretical model, we show how altruistic parents avoid taxes by changing the timing of transfers when inter vivos gifts are taxed separately from bequests (which is the case in many developed countries). The excess burden per tax dollar of the transfer taxes is sometimes infinitely large because of tax avoidance. All tax avoidance is eliminated if bequests and gifts from the same donor are jointly taxed.     

Capital taxation in a dynamic general equilibrium setting

The familiar two-factor, two-commodity incidence model is extended to a dynamic setting in which the supply of capital is variable and the government can use money or bonds to balance its budget in addition to neutral lump sum taxation. The dynamic incidence effects of a sectoral tax on capital are qualitatively similar to the static incidence effects when the government balances its budget with neutral taxes, but are qualitatively different when the government uses money or bonds. In this case, while capital bears the burden of the tax in the short run, it is able to shift it in the long run.     

Age-related taxation of bequests in the presence of a dependency risk

This paper studies the properties of the optimal taxes on bequests when individuals differ in wage and in their risks of mortality and old-age dependance. Survival is positively correlated to income but dependency is negatively correlated with it. The government cannot distinguish between bequests motives, that is whether bequests resulted from precautionary reasons or from pure joy of giving reasons. Instead, it observes the timing of bequests and the health status at death. Under the utilitarian social welfare criterion, we show that bequests taxation results from a combination of equity, insurance, and public revenue motives. If redistribution concerns dominate insurance concerns, it is desirable to tax the most bequests of those individuals living long in good health and to tax the least bequests of those dying early. This is a direct consequence of the socio-demographic structure we assumed where richer agents live longer and in better health than poorer agents. To the opposite, if insurance concerns dominate redistributive concerns, early bequests should be the most taxed and, bequests under dependency the least taxed. Under the Rawlsian criterion, we find that early bequests should be the least taxed and bequests left by the healthy long-lived individuals should be the most taxed.     

Environmental quality,the macroeconomy,and intergenerational distribution

The paper studies the dynamic allocation effects and intergenerational welfare consequences of environmental taxes. To this end, environmental externalities are introduced in a Blanchard–Yaari overlapping generations model of a small open economy. A rise in environmental taxes – taking into account pre-existing distortionary taxes and endogenous labor supply – is shown to yield an efficiency gain if agents care enough for the environment. The benefits are unevenly distributed across generations because agents are heterogeneous in their capital ownership. An accompanying debt policy can be designed – prescribing debt accumulation at impact and debt redemption in the new steady state – to ensure everybody gains to the same extent. With lump-sum recycling of environmental tax revenue, aggregate employment is unaffected in the short run, but falls in the long run. Furthermore, it raises environmental quality more in the long run than in the short run. Recycling revenue through a cut in labor taxes, however, is shown to yield a rise in employment in the short run, which disappears during transition. In the new steady state, environmental quality is higher at the expense of a lower level of employment.     

Capital taxation, long-run growth, and bequests

It has been shown that higher capital taxes can have a growth-enhancing effect when combined with a revenue-compensating cut in wage taxes or with an expansion in productivity-increasing public services. The present paper demonstrates that these results critically hinge on the existence of a bequest motive. It is shown that a wage-tax cut is no longer growth-enhancing when bequests are operative. By way of contrast, increasing productive public services may well boost growth. The theoretical findings are illustrated by numerical simulations based on US data.     

Choosing between gifts and bequests: How taxes affect the timing of wealth transfers

A number of theories have been advanced to explain the size and timing of intergenerational transfers. One factor only recently explored is the effects of taxes, and in particular the estate tax, on such transfers. This paper represents the first attempt to explore how capital gains and gift taxes, in addition to the estate tax, interact to influence incentives in the timing of transfers. Using estate tax data and exploiting variations in state inheritance, gift, and capital gains tax rates, this paper finds taxes to be an important consideration in the choice between gifts and bequests. In particular, each of capital gains and gift taxes are found to be important determinants of the timing of transfers. These findings are robust to a number of specifications that control for borrowing, charitable bequests, marital status, and the portfolio composition of wealth transfers.     

Intergenerational Allocation of Government Expenditures: Externalities and Optimal Taxation

This paper studies optimal capital and labor income taxes when the benefits of public goods are age‐dependent. Provided the government can impose a consumption tax, it can attain the first‐best resource allocation. This involves the uniform taxation of the cohorts' labor income and a zero capital income tax. With no consumption tax and optimally chosen government spending, labor income should be taxed nonuniformly across cohorts and the capital income tax should be nonzero. Deviations of the public goods from their respective optima create distortions. These affect the labor supply decisions of both cohorts and capital accumulation, providing a further reason to tax (or subsidize) capital income.     

Shifting Taxes from Labor to Consumption: More Employment and more Inequality?

This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value‐added tax (VAT) rate, which are compensated by revenue‐neutral reductions in income‐related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.     

Capital Income Taxation,Economic Growth and Heterogeneity in the Motivation to Give

This study provides a comprehensive analysis of the relationship between capital income taxation and economic growth within an overlapping generations model when individuals may bequeath wealth. The altruistic concern is modeled as a synthesis of joy‐of‐giving and family altruism so that individuals may derive utility from the amount of bequest itself and by providing children with a disposable income later on in life. Using this framework, it is shown that, in contrast to the existing literature, increasing the capital income tax rate may well enhance growth under operative bequests.     

Cross-base tax elasticity of capital gains

This paper studies the cross-base tax elasticity of capital gains realizations to labour income taxes when capital gains are taxed at a separate proportional tax rate. Using a longitudinal panel of over 265 000 individuals in Sweden, this paper shows in a regression kink design that labour income taxes affect capital gains realizations in two ways. An increase in the marginal labour income tax rate increases the likelihood of realizing capital gains and the amount of realized capital gains. One implication of this result is that labour income taxes have a lock-out effect but that the magnitude of this effect is smaller than the lock-in effect of the actual capital gains tax.     

Capital income taxation,tax criteria,and intergenerational welfare

In a two-period overlapping-generations model, residence criteria are shown to be optimal with lump-sum transfers to the younger generation in a dynamically efficient open economy even if all wage income, corresponding to rent income under exogenous labor supply, is not taxed away. When tax revenues are also distributed to the older generation — which indeed may be desirable for short-term intergenerational welfare distribution reasons — a weighted average rule is derived for optimal international taxation. The taxation of domestic savings income follows the inverse elasticity rule in respect to savings and, surprisingly, higher investment elasticity increases the tax level. Finally, for a small open economy and for large identical economies, tax competition with a mixed scheme of residence-based taxes and source-based subsidies yields the same tax policy as tax cooperation with no restrictions on the domestic and international capital income tax instruments.     

A general disequilibrium model of tax incidence

This paper applies a general disequilibrium approach to the tax incidence problem. Separate sections have examined the incedence of various taxes in an economy experiencing general excess demand and excess supply. The specific inclusion of these disequilibrium elements leads to some results markedly different from those obtained in an equilibrium model. The tax incidence is measured by the labor-capital ratio rather than by the familiar wage-rental ratio. The incidence of a partial factor tax can easily and definitely be shown to fall in a greater proportion on the taxed factor than on the untaxed one.     

Employment Flows,Capital Mobility,and Policy Analysis

This article extends Hopenhayn and Rogerson's analysis of firing taxes by introducing a flexible form of capital and considering transitionary dynamics. The article finds that capital is not important for understanding the long run and welfare effects of firing taxes. However, capital is crucial for determining the short run consequences of eliminating this type of policy.     

Growth Effects of Taxation Under Altruism and Low Elasticity of Intertemporal Substitution

An increase in the tax rate on capital income may raise the rate of economic growth when the elasticity of intertemporal substitution is low and intergenerational transfers are absent. Since the strength of the bequest motive depends on tax rates, this paper provides conditions under which taxing capital income, and then reducing the labour income tax, is more growth enhancing than the classical policy of zero taxes on capital income, and vice versa.     

Ageing,fertility, and growth

This paper analyses the interaction between human capital accumulation, fertility, and labour participation of families in the presence of technology shocks. Altruistic families spend time on the education of their children to increase their level of human capital. Compensating transfers through negative bequests are blocked by an active bequest constraint. Productivity shocks increase the opportunity costs of children and may cause a drop in fertility, which results in population ageing. We investigate the effects of ageing on allocation and welfare in the presence of a Pay-As-You-Go (PAYG) pension system.     

ON THE CONSUMPTION TAX AND THE TAX TREATMENT OF BEQUESTS IN DIFFERENT MODELS OF BEQUEATHING BEHAVIOUR*

The tax treatment of bequests under the consumption tax policy is studied in two models of bequeathing behaviour, a model where the parent cares about the bequest itself and a model where the parent cares about the welfare of his offspring instead. It is shown that the two models make precisely opposite predictions of the effects of the consumption tax including the conditions under which the tax is neutral, the differential incidence of the tax in a closed economy when it is non-neutral, and the international transmission effect of the tax when it is non-neutral.     

Effects of Capital Income Taxes on Welfare in an Overlapping-generations Model

This paper describes the short-run and long-run effects of various capital income taxes on welfare using an overlapping-generations model according to the 'new view'. It is in the nature of a survey, because some of the results from seminal papers in this field can be achieved, under weaker assumptions. The paper reaches the paradoxical and intriguing conclusion that the distortionary effects of a dividend tax in the long run and of capital gains tax in the short run improve economic welfare, and exceed the income effects.
JEL Classification Numbers: G3, H2.     

MACROECONOMIC AND REDISTRIBUTIONAL EFFECTS OF CONSUMPTION TAXES IN THE USA*

This paper studies the effect of an increase in consumption taxes using a dynamic general equilibrium model of overlapping generations calibrated to the US economy. When the proceeds are used to reduce income taxes, the reform raises the aggregate capital and labour supply in the long run. Workers increase labour supply immediately in response to the reform, while consumption rises only gradually. The tax reform also transfers wealth from old consumers to young consumers. As a result, while future generations experience significant welfare gains, current generations, particularly old consumers, tend to experience sizable welfare losses. When the proceeds are used for a lump‐sum transfer, the aggregate capital and labour both decrease in the long run. This reform is welfare‐improving for the current low‐income households.     

Capital depreciation allowances,redistributive taxation,and economic growth

Are capital depreciation allowances when coupled with capital income taxes good instruments for redistribution in the long run? In a simple two-agent-economy I find that accelerated depreciation is good for growth, but bad for redistribution. The opposite holds for capital income taxes. However, in a feedback Stackelberg equilibrium, where the government is the leader and the private sector the follower, the depreciation allowance is maximal in the long run, time-consistent optimum. This removes the accumulation distortion of capital income taxes. Furthermore, the latter, and so redistribution, is found to be generically nonzero in the time-consistent optimum, and depends on the social weight of transfers receivers, the pretax factor income distribution, the intertemporal elasticity of substitution and the time preference rate. Thus, accelerated depreciation allowances are an important indirect tool for redistribution. The tax scheme allows for a separation of “efficiency” and “equity” concerns for redistributive policies.