This paper provides an example aimed at calculating the optimal inheritance tax in a model in which inheritances are used to finance investment in education. Two results are obtained: (1) The optimal inheritance tax schedule includes a threshold, estimated between 2.5 and 5.5 times per-capita GDP. This result holds for a Rawlsian social planner that maximizes the welfare of the poorest individual, who does not leave bequests. (2) Contrary to the result of a 100 % tax on pure accidental bequests, the optimal simulated tax rates are between 28 %, for the case of educational bequests, and 57 %, for the case where educational and accidental bequests interact. This range is in line with existing schedules in developed economies.
Bibliographical noteDiscussion paper series (Feher Institute)
Publisher name: The Federmann School of Public Policy & Government, 2012.
- Inheritance tax
- Investment in education