Estate tax and lifetime income inequality

Abstract

This paper constructs a heterogeneous, intertemporal general equilibrium framework which integrates both intended and unintended bequest motives to examine the long-run effects of an estate tax on the inequality of lifetime income. The results are ambiguous in general and sensitive to the type of transfer motive involved. We find that in the purely intended bequest case, an estate tax increases the steady-state inequality of net lifetime income in the case where people's elasticity of intertemporal substitution is greater than one. However, in the purely unintended bequest case, the effect of an estate tax on inequality is dependent on the probability of survival.