Capital income taxation when inherited wealth is not observable
(2001)
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- Abstract
- This paper extends the Atkinson-Stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics: productive ability and inherited wealth. Bequests are motivated by the "joy of giving". A child's inheritance is a random variable with a probability distribution that depends on his parent's investment in a "bequest technology". Public borrowing is assumed and implies the modified golden rule. We study the optimal tax policy when two instruments are available: a non-linear (wage) income tax and a proportional tax on capital income. We show that the second instrument ought, in general, to be used but that the tax rate is not necessarily positive. However, a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability.
- Affiliations
Citations
Cremer, H., Pestieau, P., & Rochet, J.-C. (2001). Capital income taxation when inherited wealth is not observable (CORE Discussion Papers 2001/20). https://hdl.handle.net/2078.5/128247