Bequest Tax Research Articles

Optimal Taxation of Bequests

A critique of Kaplow's (2001) optimal taxation (OT) framework for assessing inheritance taxation is outlined in this paper. Several points are raised, the most important one being that Kaplow's central result cannot be extrapolated to the important case of altruism very easily. Several formal problems of modelling altruism are discussed. Finally, I propose a simple OT model which can justify a marginal subsidy of bequests, and point out the limits of this approach.

Pareto-Improving Bequest Taxation

Altruistic parents may transfer resources to their offspring by providing education, and by leaving bequests. We show that in the presence of wage taxation, a small bequest tax may improve efficiency in an overlapping-generations framework with only intended bequests, by enhancing incentives of parents to invest in their children's education. This result holds even if the wage tax rate is held constant when introducing bequest taxation. We also calculate an optimal mix of wage and bequest taxes with alternative parameter combinations. In all cases, the optimal wage tax rate is clearly higher than the optimal bequest tax rate, but the latter is generally positive when the required government revenue in the economy is sufficiently high.

The distribution of bequests in Japan

In this paper we show a transition in bequest inequality for the period of 1986 to 1994. We use only two types of data: the bequest tax data for wealthy deceased and the bequest estimated by Shimono and Ishikawa [Estimating the Size of Bequests in Japan: 1986–1994, International Economic Journal 16 (2002) 1–21] for all deceased. We compute bequest distribution, assuming lognormal or Pareto distribution. These two distributions give us rather similar results, although the Gini coefficients calculated from lognormal distribution are more appropriate for Japan. The reasonable Gini coefficients are between 0.61 and 0.68, and fluctuate with land and share prices. J. Japanese Int. Economies 20 (1) (2006) 77–86.

Bequest taxes, inter vivos gifts, and the bequest motive

This paper investigates the existence of an operative bequest motive by testing whether state bequest taxes influence the giving of inter vivos gifts. A significant positive relation between bequest tax rates and both the probability and level of inter vivos gifts is found, suggesting that at least some portion of bequests is intentional.

Non-linear taxation of bequests, equal sharing rules and the tradeoff between intra- and inter-family inequalities

This paper studies the design of the tax and regulatory regime applied to bequests. Bequests are observable, while parent’s wealth and children’s earning abilities are not. Parents know their children’s earning abilities. Parents are altruistic; their utility depends on their children’s utilities, but weights may differ between children. The optimal tax schedule strikes a balance between the (often) conflicting ‘incentive’ and ‘corrective’ effects. When parents attach identical weights to their children, an estate taxation is sufficient. Equal sharing rules appear to be appropriate only in extreme cases such as in presence of the so-called Cinderella effect.

The Effects of Bequest Tax on Land Prices and Land Use

The paper examines whether bequest taxation affects land use, using an overlapping-generations model. In Japan, in assessing land for the purpose of inheritance taxation, the assessed value is less than the market value; however, other assets are valued at market value. Such an asymmetry creates a greater incentive for the older generation to hold land, because the probability of decease is higher for older than younger persons. With constant technology available in each generation, the inheritance tax is found to lead to inefficient land use, sluggish conversion of land over time and higher land prices. JEL Classification Numbers: H24, R14.

Taxation, Bequests, and Short and Long Run Timber Supplies: An Overlapping Generations Problem

This paper uses an overlapping generations model with one-sided altruism to study the effects of several forest taxes that target bequests and affect timber supply. Unlike previous work, we investigate bequests and timber supply in both the short and long run when bequests are costly (e.g., taxed). The landowner's problem is examined in the short run, while the government's problem is examined in the long run assuming the existence of a steady state. We also consider taxes targeting harvests, growth, savings and bequests. Several new results are established concerning the interactions of taxes that might be used by a government to alter short and long run forest capital stocks: (i) the presence of a forest bequest tax affects the neutrality of harvest tax in both the short and long run, (ii) in the long run the bequest tax decreases bequests and timber supplies. When the bequest tax is not present, the capital income tax is neutral with respect to bequest and timber supply, while the harvest tax is neutral only if forest productivity is also not taxed. Finally, (iii) in the short run, the substitution and total effects of taxes in landowner decisions generally depend on the presence of the bequest tax. The results have implications for Pigouvian tax design and second best tax choice.

Charitable contributions and intergenerational transfers

This paper investigates the effects of bequest taxes and the income of children on the lifetime charitable contributions of parents. Using matched income tax records for parents and children, the results show a positive elasticity of 0.6 for contributions with respect to the tax price of bequests. The paper also finds that the income of children affects the amount that parents contribute to charity. The results show a positive elasticity of up to 0.14 for contributions by parents with respect to the income of children, implying that when children are better off, parents are likely to increase charitable giving.