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American Economic Review Vol. 99 No. 1 2009

Estate Taxation, Entrepreneurship, and Wealth

Marco Cagetti1; Mariacristina De Nardi2

1 Board of Governors of the Federal Reserve System, Mail Stop 97, Washington, DC 20551. · 2 Federal Reserve Bank of Chicago, Research Department, 230 South LaSalle Street, Chicago, IL 60615, and National Bureau of Economic Research.

Abstract

This paper studies the estate tax in a quantitative framework with business investment, borrowing constraints, estate transmission, and wealth inequality. We find that the estate tax has little effect on the saving and investment decisions of small businesses, but does distort the decisions of larger firms, thereby reducing aggregate output and savings. Removing such distortions by eliminating the estate tax does not necessarily imply that everyone would be better off. If other taxes were raised to reestablish fiscal balance, those at the top of the wealth distribution would experience a large welfare gain, but most of the population would lose.

DOI
10.1257/aer.99.1.85
Volume
99
Issue
1
Pages
85-111
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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