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  3. American Economic Review
  4. May 2013
  5. Incentive Effects of Inheritances and Optimal Estate Taxation

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Incentive Effects of Inheritances and Optimal Estate Taxation

  • Wojciech Kopczuk
American Economic Review
vol. 103, no. 3, May 2013
(pp. 472–77)
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Abstract

I consider optimal nonlinear taxation of income and bequests with a joy-of-giving bequest motive and explicitly characterize the optimal estate tax rate. The optimal formula trades off correction of externality from giving and discouraging effort of children due to income effect generated by bequests. The analysis shows that optimality of a positive tax on bequests rests on the strength of the effect of bequests on behavior of future generations. The analysis also suggests that inheritance, rather than estate tax, is better suited to implement the optimal policy.

Citation

Kopczuk, Wojciech. 2013. "Incentive Effects of Inheritances and Optimal Estate Taxation." American Economic Review, 103 (3): 472–77. DOI: 10.1257/aer.103.3.472

Additional Materials

JEL Classification

  • H21 Taxation and Subsidies: Efficiency; Optimal Taxation
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • H71 State and Local Taxation, Subsidies, and Revenue
  • K34 Tax Law