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Age-related taxation of bequests in the presence of a dependency risk

Author

Listed:
  • Pestieau, Pierre

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Leroux, Marie-Louise
Abstract
This paper studies the properties of the optimal taxes on bequests when individuals differ in wage and in their risks of mortality and old-age dependance. Survival is positively correlated to income but dependency is negatively correlated with it. The government cannot distinguish between bequests motives, that is whether bequests resulted from precautionary reasons or from pure joy of giving reasons. Instead, it observes the timing of bequests and the health status at death. Under the utilitarian social welfare criterion, we show that bequests taxation results from a combination of equity, insurance and public revenue motives. If redistribution concerns dominate insurance concerns, it is desirable to tax the most bequests of those individuals living long in good health and to tax the least bequests of those dying early. This is a direct consequence of the socio-demographic structure we assumed where richer agents live longer and in better health than poorer agents. To the opposite, if insurance concerns dominate redistributive concerns, early bequests should be the most taxed and, bequests under dependency the least taxed. Under the Rawlsian criterion, we find that early bequests should be the least taxed and bequests left by the healthy long-lived individuals should be the most taxed.

Suggested Citation

  • Pestieau, Pierre & Leroux, Marie-Louise, 2021. "Age-related taxation of bequests in the presence of a dependency risk," LIDAM Reprints CORE 3182, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:3182
    DOI: https://doi.org/10.1111/jpet.12539
    Note: In: Journal of Public Economic Theory, 2021
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    References listed on IDEAS

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    1. Lee M. Lockwood, 2018. "Incidental Bequests and the Choice to Self-Insure Late-Life Risks," American Economic Review, American Economic Association, vol. 108(9), pages 2513-2550, September.
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    Cited by:

    1. Marie Connolly & Akakpo Domefa-Konou & Marie-Louise Leroux, 2023. "Evaluating the relationship between income, survival and loss of autonomy among older Canadians," CIRANO Working Papers 2023s-04, CIRANO.
    2. Justina Klimaviciute & Pierre Pestieau, 2023. "The economics of long‐term care. An overview," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1192-1213, September.
    3. Philipp Krug, 2022. "Optimal Estate Taxation: More (about) Heterogeneity across Dynasties," Working Papers 217, Bavarian Graduate Program in Economics (BGPE).
    4. Janusz Kud³a & Robert Kruszewski & Maciej Dudek & Konrad Walczyk, 2023. "The impact of bequest taxation on savings and transfers," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(2), pages 333-365, June.

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    More about this item

    Keywords

    Bequest taxation ; long term care ; utilitarianism ; Rawlsian welfare criterion ; old-age dependency;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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