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Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs
The taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects. This leads to an increase in future labor income tax revenue on top of direct bequest tax revenue. We first show in a theoretical model that a simple back-of-the-envelope calculation, based on existing estimates for the reduction in earnings after wealth transfers, fails: the marginal propensity to earn out of unearned income is not a sufficient statistic for the calculation of this effect because (i) heirs anticipate the reduction in net bequests and adjust their labor supply already prior to inheriting, and (ii) when bequest receipt is stochastic, even those who ex post end up not inheriting anything respond ex ante to a change in the distribution of net bequests. We quantitatively elaborate the size of the overall revenue effect due to labor supply changes of heirs by using a state of the art life-cycle model that we calibrate to the German economy. Besides the joint distribution of income and inheritances, quasi-experimental evidence regarding the size of wealth effects on labor supply is a key target for this calibration. We find that for each Euro of bequest tax revenue the government mechanically generates, it obtains an additional 9 Cents of labor income tax revenue (in net present value) through higher labor supply of (non-)heirs.
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Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs
The taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects. This leads to an increase in future labor income tax revenue on top of direct bequest tax revenue. We first show in a theoretical model that a simple back-of-the-envelope calculation, based on existing estimates for the reduction in earnings after wealth transfers, fails: the marginal propensity to earn out of unearned income is not a sufficient statistic for the calculation of this effect because (i) heirs anticipate the reduction in net bequests and adjust their labor supply already prior to inheriting, and (ii) when bequest receipt is stochastic, even those who ex post end up not inheriting anything respond ex ante to the implied change in their distribution of net bequests. We quantitatively elaborate the size of the overall revenue effect due to labor supply changes of heirs by using a state of the art life-cycle model that we calibrate to the German economy. Besides the joint distribution of income and inheritances, quasi-experimental evidence regarding the size of wealth effects on labor supply is a key target for this calibration. We find that for each Euro of bequest tax revenue the government mechanically generates, it obtains an additional 9 Cents of labor income tax revenue (in net present value) through higher labor supply of (non-)heirs.
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Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs
In: NBER Working Paper No. w25081
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Working paper
Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs
In: CESifo Working Paper No. 7265
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Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs
In: CEPR Discussion Paper No. DP13185
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Working paper
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Working paper
Reforming Family Taxation in Germany - Labor Supply vs. Insurance Effects
In: CESifo Working Paper Series No. 4386
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Working paper
Should Pensions Be Progressive? Yes, at Least In Germany!
In: CESifo Working Paper No. 3636
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Finanzhilfen bei internationalen Verschuldungskrisen?: Eine Analyse mit Hilfe globaler Spiele
In: Review of economics: Jahrbuch für Wirtschaftswissenschaften, Band 61, Heft 1, S. 1-20
ISSN: 2366-035X
Summary
The present paper focuses on the trade-off between official liquidity provision and debtor moral hazard in sovereign debt problems. The financial crisis is caused by the interaction of bad fundamentals, self-fulfilling runs of private investors and optimal policies of the national government and the official lender. Building on the global games approach of Morris and Shin (2006), we extend their analysis by calculating numerical solutions for different values of fundamental and strategic uncertainty. Our results indicate that limited financial support may even strengthen government efforts and improve welfare when fundamentals are weak but not too weak. On the other hand, we are also able to identify debtor moral hazard and welfare reducing catalytic effects with stronger fundamentals.
The Economics of Fertility: A New Era
In: CEPR Discussion Paper No. DP17212
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Life in Shackles? The Quantitative Implications of Reforming the Educational Loan System
In: CESifo Working Paper Series No. 5013
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Working paper
Life in Shackles? The Quantitative Implications of Reforming the Educational Loan System
In: Netspar Discussion Paper No. 10/2014-042
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Working paper
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Learning About Housing Cost: Survey Evidence from the German House Price Boom
In: NBER Working Paper No. w28895
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