Progressive Estate Taxation

We study efficient allocations in a Mirrleesian model with altruistic parents and focus on the implications for estate taxation. We show that optimal estate taxes have two important features. First, taxation should be progressive, so that more productive par-ents face a lower net return on bequests. Second, marginal taxes should be negative, so that parents face a marginal subsidy on bequests. We show that these features can be implemented using a simple nonlinear estate tax schedule, independent of income taxation. These prescriptions are shown to apply more broadly to other intergenera-tional transfers, such as education and human capital investments. Our results can be seen as generalizing the notion of non-inheritable debt, which obtains as a special case when the welfare criterion is Rawlsian. In extensions with heterogeneous family size, we show that inheritance taxation has an advantage over estate taxation. ∗This work benefited from useful discussions and comments volunteered by Manuel Amador, George