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


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Estate Taxation with Altruism Heterogeneity

Article Citation

Farhi, Emmanuel, and Iván Werning. 2013. "Estate Taxation with Altruism Heterogeneity." American Economic Review, 103(3): 489-95.

DOI: 10.1257/aer.103.3.489


We develop a theory of optimal estate taxation in a model where bequest inequality is driven by differences in parental altruism. We show that a wide range of results are possible, from positive taxes to subsidies. The results depend on redistributive objectives implicit in the cardinal specification of utility and social welfare functions. We propose a normalization that is helpful in classifying these different possibilities. We isolate cases where the optimal policy bans negative bequests and taxes positive bequests, features present in most advanced countries.

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Farhi, Emmanuel (Harvard U)
Werning, Iván (MIT)

JEL Classifications

D14: Personal Finance
H21: Taxation and Subsidies: Efficiency; Optimal Taxation
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
H31: Fiscal Policies and Behavior of Economic Agents: Household

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