Can Inheritance Taxation Promote Equality of Opportunities?

Abstract

After a period of relatively strong economic and social mobility during the post-WWII decades, labour income is now quickly losing its capacity to fuel mobility across the wealth distribution of Western economies, with inheritance becoming again the main determinant of individuals’ ability to make it to the top of the wealth distribution. At a time where inheritance taxation therefore seems desirable from both equity and efficiency standpoints, most inheritance tax systems are broken. They have failed to be truly progressive, and have remained very unpopular among the public. In this paper, we propose general principles to guide an in-depth reform of inheritance tax systems, to make them more efficient, progressive and transparent. Using administrative survey data from France, we also discuss whether the revenue generated by these reforms can promote equality of opportunities, by guaranteeing a wealth endowment for all. Based on detailed simulations, we explain why inheritance taxation alone cannot deal with the current dynamics of concentration of wealth at the top of the distribution, and why it needs to be complemented by progressive taxation of wealth and/or capital income. <strong>JEL No:</strong> D14, D30, D31, D63, D64, H21, H24, H26, H31.