Finance Papers

Document Type

Journal Article

Date of this Version

6-1986

Publication Source

Journal of Public Economics

Volume

30

Issue

1

Start Page

117

Last Page

128

DOI

10.1016/0047-2727(86)90081-2

Abstract

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.

Copyright/Permission Statement

© 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/

Embargo Date

3-5-2004

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Date Posted: 27 November 2017

This document has been peer reviewed.