Pareto-improving bequest taxation |
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Authors: | Volker Grossmann Panu Poutvaara |
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Institution: | 1. Department of Economics, University of Fribourg, Bd. de Pérolles 90, 1700, Fribourg, Switzerland 2. CESifo, Munich, Germany 3. Institute for the Study of Labor (IZA), Bonn, Germany 4. Department of Economics, University of Helsinki, P.O. Box 17, Arkadiankatu 7, Helsinki, 00014, Finland
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Abstract: | Altruistic parents may transfer resources to their offspring by providing education, and by leaving bequests. We show that
in the presence of wage taxation, a small bequest tax may improve efficiency in an overlapping-generations framework with
only intended bequests, by enhancing incentives of parents to invest in their children’s education. We also calculate an optimal
mix of wage and bequest taxes with alternative parameter combinations. In all cases, the optimal wage tax rate is clearly
higher than the optimal bequest tax rate, but the latter is generally positive when the required government revenue in the
economy is sufficiently high. If educational investment is partly unobservable for the government, these results qualitatively
hold also when allowing for education subsidies. |
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