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

Author

Listed:
  • Marie-Louise Leroux
  • Pierre Pestieau
Abstract
This paper studies the design of the optimal linear taxation of bequests when individuals differ in wage as well as in their risks of both mortality and old-age dependance. We assume that the government cannot distinguish between bequests motives, that is whether bequests resulted from precautionary reasons or from pure joy of giving reasons. Instead, we assume that it only observes the timing of bequests, that is whether they are made early in life or late in life. We show that, if the government is utilitarian, whether the taxation of early bequests should be given priority over the taxation of late bequests depends on the magnitude of insurance and redistributive concerns. While the efficiency concern unambiguously recommends taxation of early bequests, redistributive concerns yield ambiguous results. This indeterminacy comes from the fact that, in case of late death, the government cannot observe the health status of the deceased. Whether the taxation of early bequests should be given priority depends on the specific relationships between wages and both risks of early death and of old-age dependence, as well as on the concavity of the joy of giving utility function. If the government is Rawlsian, it is optimal to tax early bequests if the survival chances of the poorest agents are very low. If they survive, but their chances to remain autonomous are very low, it is then optimal to tax early bequests if the poorest agents contribute relatively less to the taxation of early bequests than to the taxation of late bequests or if the joy of giving utility is extremely concave.

Suggested Citation

  • Marie-Louise Leroux & Pierre Pestieau, 2020. "Age-related taxation of bequests in the presence of a dependency risk," Cahiers de recherche / Working Papers 2007, Chaire de recherche sur les enjeux économiques intergénérationnels / Research Chair in Intergenerational Economics.
  • Handle: RePEc:rsi:creeic:2007
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    References listed on IDEAS

    as
    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.
    2. Thomas Piketty & Emmanuel Saez, 2013. "A Theory of Optimal Inheritance Taxation," Econometrica, Econometric Society, vol. 81(5), pages 1851-1886, September.
    3. Marc Fleurbaey & Marie‐Louise Leroux & Pierre Pestieau & Gregory Ponthiere & Stephane Zuber, 2022. "Premature deaths, accidental bequests, and fairness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(3), pages 709-743, July.
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    5. Cremer, Helmuth & Pestieau, Pierre, 2006. "Wealth transfer taxation: a survey of the theoretical literature," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 16, pages 1107-1134, Elsevier.
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    Cited by:

    1. 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.
    2. Philipp Krug, 2022. "Optimal Estate Taxation: More (about) Heterogeneity across Dynasties," Working Papers 217, Bavarian Graduate Program in Economics (BGPE).
    3. 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.
    4. 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.

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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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