Accidental Bequests: A Curse for the Rich and a Boon for the Poor
37 Pages Posted: 27 Jun 2010
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Accidental Bequests: A Curse for the Rich and a Boon for the Poor
Accidental Bequests: A Curse for the Rich and a Boon for the Poor
Date Written: June 24, 2010
Abstract
When accidental bequests signal otherwise unobservable individual characteristics such as productivity and longevity, the tax administration should partition the population into two groups: One consisting of people who do not receive an inheritance and the other of those who do. The first tagged group gets a second-best tax à la Mirrlees; the second group a first-best tax schedule. The solution implies that receiving an inheritance makes high-ability types worse off and low-ability types better off. High-ability individuals will necessarily face a bequest tax of more than 100%, while low-ability types face a bequest tax that can be smaller as well as larger than 100% and may even be negative.
Keywords: accidental bequests, estate tax, tagging, first best, second best
JEL Classification: H21
Suggested Citation: Suggested Citation
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