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Redistribution with Unobservable Bequests: A Case for Taxing Capital Income
Author(s) -
Boadway Robin,
Marchand Maurice,
Pestieau Pierre
Publication year - 2000
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00198
Subject(s) - economics , unobservable , redistribution (election) , redistribution of income and wealth , labour economics , earnings , inheritance tax , capital income , international taxation , income tax , gross income , double taxation , capital (architecture) , state income tax , monetary economics , microeconomics , tax reform , public economics , econometrics , finance , archaeology , public good , politics , political science , law , history
This paper addresses the question of the optimal taxation of labour and interest income in an overlapping generations model with two unobservable characteristics, ability and inheritance. We assume realistically that saving can only be taxed anonymously, whereas the tax on labour earnings can be individualized and made non‐linear. In such a setting, we show that a withholding tax on interest income along with a non‐linear tax on labour income is desirable. The role of interest income taxation is to indirectly tax inherited wealth. JEL Classification D 63, H 2