Date of this Version
Journal of Public Economics
Although the Ricardian Equivalence Theorem holds under a linear estate tax schedule, it fails to hold under a nonlinear estate tax schedule. In a representative consumer economy, a temporary lump-sum tax increase reduces contemporaneous consumption. If different consumers face different marginal estate tax rates because they leave bequests of different sizes, a lump-sum tax increase redistributes resources from consumers in low marginal estate tax brackets to consumers in high marginal estate tax brackets; aggregate consumption may rise, fall, or remain unchanged. These departures from Ricardian Equivalence hold more generally under any nonlinear tax on saving, wealth or income accruing to wealth.
© 1986. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Abel, A. B. (1986). The Failure of Ricardian Equivalence Under Progressive Wealth Taxation. Journal of Public Economics, 30 (1), 117-128. http://dx.doi.org/10.1016/0047-2727(86)90081-2
Date Posted: 27 November 2017
This document has been peer reviewed.