Tax on Inheritances and Inequality between Generations

Abstract

　This paper examines the effects of an inheritance tax on inequality between generations focusing on asset holding. The inheritance tax is taxation on transfer of assets and is likely to have influence on the correction of inequality in households' assets. It, however, cannot be so effective in the short run. On the other hand, it can have influence for long periods because inheritances are inherited from generation to generation.

　But, these effects are substantially affected by an ancestor's motive for asset. In the life-cycle model, an ancestor tries to avoid severer burden of inheritance tax and willingly consumes his own assets after leaving office. In this case, the inequality in assets decreases both inter and intra generations. In contrast, in the Dynasty model, an ancestor is likely to try to increase his inheritance reacting against the inheritance tax. As a result, the inheritance tax does not necessarily reduce the inequality.