Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean)
This paper examines the effect of redistributive inheritance tax on income distribution and social welfare. The model used here is the Overlapping-Generations Model consisting of individuals with different bequest motives where the lifetime income distribution in each cohort is determined endogenous...
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| Format: | Article |
| Language: | English |
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Korea Development Institute
1990-12-01
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| Series: | KDI Journal of Economic Policy |
| Online Access: | https://doi.org/10.23895/kdijep.1991.12.4.97 |
| _version_ | 1818878081185611776 |
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| author | 문, 형표 |
| author_facet | 문, 형표 |
| author_sort | 문, 형표 |
| collection | DOAJ |
| description | This paper examines the effect of redistributive inheritance tax on income distribution and social welfare. The model used here is the Overlapping-Generations Model consisting of individuals with different bequest motives where the lifetime income distribution in each cohort is determined endogenously by the dynamic bequest process. It is shown that the introduction of redistributive inheritance tax can improve the vertical equity in the sense that the increase in tax rate reduces the coefficient of variations of intra-cohort income distribution in steady-state. However, it is also shown that, the effect on social welfare, when measured by Benthamite SWF, is uncertain in general. The numerical simulations show that, in spite of its equity-enhancing effect, the tax increase can actually lower the steady-state social welfare within the plausible range of parametric values, through the long-run output effect as well as the deadweight welfare loss incurred by tax distortion. Hence, the problem of equity-efficiency trade-off can arise in this case. However, if both the market interest rate and the elasticity of marginal Utility in individual’s preference function are sufficiently high, it is shown to be possible that the steady-state social welfare is enhanced by the introduction of inheritance tax. |
| first_indexed | 2024-12-19T14:08:30Z |
| format | Article |
| id | doaj.art-3a4b52fdab2a4483bb34912523ed9694 |
| institution | Directory Open Access Journal |
| issn | 2586-2995 2586-4130 |
| language | English |
| last_indexed | 2024-12-19T14:08:30Z |
| publishDate | 1990-12-01 |
| publisher | Korea Development Institute |
| record_format | Article |
| series | KDI Journal of Economic Policy |
| spelling | doaj.art-3a4b52fdab2a4483bb34912523ed96942022-12-21T20:18:14ZengKorea Development InstituteKDI Journal of Economic Policy2586-29952586-41301990-12-011249711110.23895/kdijep.1991.12.4.97Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean)문, 형표This paper examines the effect of redistributive inheritance tax on income distribution and social welfare. The model used here is the Overlapping-Generations Model consisting of individuals with different bequest motives where the lifetime income distribution in each cohort is determined endogenously by the dynamic bequest process. It is shown that the introduction of redistributive inheritance tax can improve the vertical equity in the sense that the increase in tax rate reduces the coefficient of variations of intra-cohort income distribution in steady-state. However, it is also shown that, the effect on social welfare, when measured by Benthamite SWF, is uncertain in general. The numerical simulations show that, in spite of its equity-enhancing effect, the tax increase can actually lower the steady-state social welfare within the plausible range of parametric values, through the long-run output effect as well as the deadweight welfare loss incurred by tax distortion. Hence, the problem of equity-efficiency trade-off can arise in this case. However, if both the market interest rate and the elasticity of marginal Utility in individual’s preference function are sufficiently high, it is shown to be possible that the steady-state social welfare is enhanced by the introduction of inheritance tax.https://doi.org/10.23895/kdijep.1991.12.4.97 |
| spellingShingle | 문, 형표 Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean) KDI Journal of Economic Policy |
| title | Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean) |
| title_full | Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean) |
| title_fullStr | Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean) |
| title_full_unstemmed | Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean) |
| title_short | Equity-Efficiency Trade-off : the Case of Inheritance Tax (Written in Korean) |
| title_sort | equity efficiency trade off the case of inheritance tax written in korean |
| url | https://doi.org/10.23895/kdijep.1991.12.4.97 |
| work_keys_str_mv | AT munhyeongpyo equityefficiencytradeoffthecaseofinheritancetaxwritteninkorean |