Intergenerational Disagreement and Optimal Taxation of Parental Transfers. (9th July 2016)

• Record Type: Journal Article
• Authors: Pavoni, Nicola; Yazici, Hakki
• Is Part Of: Review of economic studies. Volume 84:Number 3(2017:Jul.)
• Page Start: 1264
• Page End: 1305
• Publication Date: 2016-07-09
• Subjects: Parental transfer taxation -- Intergenerational disagreement -- Altruism; E21 -- H21 -- D91; Economics -- Periodicals; 330
• DOI: 10.1093/restud/rdw036
• Languages: English
• ISSNs: 0034-6527

Abstract

Abstract: We study optimal taxation of bequests and inter vivos transfers in a model where altruistic parents and their offspring disagree on intertemporal trade-offs. We show that the laissez-faire equilibrium is Pareto inefficient, and whenever offspring are impatient from their parents' perspective, optimal policy involves a positive tax on parental transfers. Cautioned by the technical complications present in this class of models, our normative prescriptions do not rely on the assumption of differentiability of the agents' policy functions.