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American Economic Review: Vol. 103 No. 3 (May 2013)

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Incentive Effects of Inheritances and Optimal Estate Taxation

Article 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

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.

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Authors

Kopczuk, Wojciech (Columbia U)

JEL Classifications

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


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