Wealth inequality, intergenerational links and estate taxation
Abstract: Empirical studies have shown that, for many countries, the distribution of wealth is much more concentrated than the one of labor earnings. We do not have yet a satisfactory model that can generate enough concentration in wealth from the one for earnings. I construct a computable general equilibrium model with overlapping generations in which parents and children are linked by bequests and earnings within families. I show that bequests are important to explain the emergence of large estates that characterize the top of the wealth distribution and that the introduction of a bequest motive generates lifetime saving profiles more consistent with the data. Moreover, allowing for earnings persistence within families generates an even more concentrated wealth distribution. A cross-country comparison between the U.S. and Sweden shows that intergenerational linkages are important also in economies where redistribution programs are more prominent and there is less inequality.
File(s): File format is application/pdf http://www.chicagofed.org/digital_assets/publications/working_papers/1999/wp99_13.pdf
Provider: Federal Reserve Bank of Chicago
Part of Series: Working Paper Series
Publication Date: 1999