Taxes in a Life Cycle Growth Model with Bequests and Inheritances
Abstract
In a recent paper, Lawrence Summers (1981) analyzes alternative taxes in a life cycle growth model. This paper extends his analysis to include bequests and inheritances. This inclusion is worth undertaking for several reasons. First, several recent empirical studies have suggested that bequests may account for an important share of the capital stock (Laurence Kotlikoff and Summers, 1981). Second, it is important to explore whether the comparison of taxes is significantly affected when a bequest motive is introduced. Third, the treatment of bequests under a consumption tax is controversial. The endowment rationale calls for treating a bequest as taxable consumption by the deceased (Peter Mieszkowski, 1980); the wage rationale calls for exempting bequests if such exemption raises the steady-state capital intensity and real wage (my 1980 article). This paper confines itself to positive analysis of steady states. Transition paths, and normative implications, are explored elsewhere (see my 1982 paper).
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