Estate Taxation, Entrepreneurship and Wealth

The authors study the effects of abolishing estate taxation in a quantitative and realistic framework that includes the key features that policymakers are worried about: business investment, borrowing constraints, estate transmission and wealth inequality. They use their model to estimate effective estate taxation. They consider various tax instruments to reestablish fiscal balance when abolishing estate taxation. They find that abolishing estate taxation would not generate large increases in inequality, and would, in some cases, generate increases in aggregate output and capital accumulation. If, however, the resulting revenue shortfall were financed through increased income or consumption taxation, the immensely rich, and the old among those in particular, would experience a welfare gain, at the cost of welfare losses for the vast majority of the population.