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Wealth inequality, family background, and estate taxation

De Nardi, M; Yang, F; (2016) Wealth inequality, family background, and estate taxation. Journal of Monetary Economics , 77 pp. 130-145. 10.1016/j.jmoneco.2015.10.005. Green open access

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This paper generates two main contributions. First, it provides a new theory of wealth inequality that merges two empirically relevant forces generating inequality: bequest motives and inheritance of ability across generations; and an earnings process that allows for more earnings risk for the richest. Second, it uses the resulting calibrated framework to study the effects of changing estate taxation. Increasing the estate tax reduces the wealth concentration in the hands of the richest few and the economic advantage of being born to a rich and super-rich family at the cost of reduced aggregate capital and output. However, all of these effects are quite small. In contrast, increasing estate taxation can generate a significant welfare gain to a newborn under the veil of ignorance, but this comes at a large welfare cost for the super-rich.

Type: Article
Title: Wealth inequality, family background, and estate taxation
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jmoneco.2015.10.005
Publisher version: http://dx.doi.org/10.1016/j.jmoneco.2015.10.005
Language: English
Additional information: © 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/1475564
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