Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-23T03:07:13.408Z Has data issue: false hasContentIssue false
  • English
  • Français

ESTATE TAXATION AND HUMAN CAPITAL WITH INFORMATION EXTERNALITIES

Published online by Cambridge University Press:  12 July 2018

Aaron Hedlund
Aaron Hedlund*
Affiliation:
University of Missouri
*
Address correspondence to: Aaron Hedlund, University of Missouri, 909 University Avenue, Columbia, MO 65211; e-mail: hedlunda@missouri.edu.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper investigates the effects of estate taxation when firms cannot directly observe worker skill levels. Imperfect labor market signaling gives rise to an information externality that causes workers to free-ride off of others’ human capital acquisition. Inherited wealth exacerbates the information externality because risk averse workers with larger inheritances exert less effort to acquire skills. By reducing these inheritances, an estate tax induces greater skill acquisition effort and increases the number of skilled workers. In a quantitative model with employer learning and capital accumulation, the optimal estate tax is significantly above zero, increases wages and output, and benefits a large majority of households.

Keywords

Information ExternalitiesSignalingLabor MarketsBequestsEstate Taxes
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 3 , April 2020 , pp. 568 - 600
Copyright
© Cambridge University Press 2018

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

Comments are welcome at hedlunda@missouri.edu. I thank Dirk Krueger, Guido Menzio, Harold Cole, and Andy Postlewaite for many useful comments. Any errors are my own.

References

REFERENCES

Acemoglu, D. (1996) A microfoundation for social increasing returns in human capital accumulation. Quarterly Journal of Economics 111, 779–804.CrossRefGoogle Scholar
Acemoglu, D. and Angrist, J. (2000) How large are human-capital externalities? Evidence from compulsory schooling laws. NBER Macroeconomics Annual 15, 9–59.CrossRefGoogle Scholar
Bedard, K. (2001) Human capital versus signaling models: University access and high school dropouts. Journal of Political Economy 109, 749–775.CrossRefGoogle Scholar
Bø, E. E., Halvorsen, E., and Thoresen, T. O. (2018) Heterogeneity of the Carnegie effect. Journal of Human Resources (forthcoming).CrossRefGoogle Scholar
Brown, J., Coile, C. C., and Weisbenner, S. J. (2010) The effect of inheritance receipt on retirement. Review of Economics and Statistics 92, 425–434.CrossRefGoogle Scholar
Chamley, C. (1986) Optimal taxation of capital income in general equilibrium with infinite lives. Econometrica 54, 607–622.CrossRefGoogle Scholar
Elinder, M., Erixson, O., and Ohlsson, H. (2012) Carnegie visits nobel: Do Inheritances affect labor and capital income? B.E. Journal of Economic Analysis & Policy 12, 1–37.Google Scholar
Fang, H. and Norman, P. (2006) Government-manded discrimination policies: Theory and evidence. International Economic Review 47, 361–389.CrossRefGoogle Scholar
Farhi, E. and Werning, I. (2010) Progressive estate taxation. Quarterly Journal of Economics 125, 635–673.CrossRefGoogle Scholar
Farhi, E. and Werning, I. (2012) Capital taxation: Quantitative explorations of the inverse euler equation. Journal of Political Economy 120, 398–445.CrossRefGoogle Scholar
Gennaioli, N., La Porta, R., Lopez-de Silanes, F., and Shleifer, A. (2013) Human capital and regional development. Quarterly Journal of Economics 87, 105–164.CrossRefGoogle Scholar
Golosov, M., Kocherlakota, N., and Tsyvinski, A. (2003) Optimal indirect and capital taxation. Review of Economic Studies 70, 569–587.CrossRefGoogle Scholar
Holtz-Eakin, D., Joulfaian, D., and Rosen, H. (1993) The Carnegie conjecture: Some empirical evidence. Quarterly Journal of Economics 108, 413–435.CrossRefGoogle Scholar
Iranzo, S. and Peri, G. (2009) Schooling externalities, technology, and productivity: Theory and evidence from U.S. States. Review of Economics and Statistics 91, 420–431.CrossRefGoogle Scholar
Joulfaian, D. and Wilhelm, M. O. (1994) Inheritance and labor supply. Journal of Human Resources 29, 1205–1234.CrossRefGoogle Scholar
Judd, K. L. (1985) Redistributive taxation in a simple perfect foresight model. Journal of Public Economics 28, 59–83.CrossRefGoogle Scholar
Kapicka, M. and Neira, J. (2013) Optimal Taxation with Risky Human Capital. Working paper.Google Scholar
Krueger, D. and Ludwig, A. (2016) On the optimal provision of social insurance: Progressive taxation versus education subsidies in general equilibrium. Journal of Monetary Economics 77, 72–98.CrossRefGoogle Scholar
Lange, F. and Topel, R. (2006) The social value of education and human capital. Handbook of the Economics of Education 1, 459–509.CrossRefGoogle Scholar
Lockwood, B. (1991) Information externalities in the labour market and the duration of unemployment. Review of Economic Studies 58, 733–753.CrossRefGoogle Scholar
Lucas, R. E. (1988) On the mechanics of economic development. Journal of Monetary Economics 22, 3–42.CrossRefGoogle Scholar
Pestieau, P. and Sato, M. (2008) Estate taxation with both accidental and planned bequests. Asia-Pacific Journal of Accounting and Economics 15, 223–240.CrossRefGoogle Scholar
Piketty, T. and Saez, E. (2013) A theory of optimal capital taxation. Econometrica 81, 1851–1886.Google Scholar
Popov, S. V. and Bernhardt, D. (2012) Fraternities and labor market outcomes. American Economic Journal: Microeconomics 4, 116–141.Google Scholar
Rauch, J. E. (1993) Productivity gains from geographic concentration of human capital: Evidence from the cities. Journal of Urban Economics 34, 380–400.CrossRefGoogle Scholar
Restrepo, P. (2015) Skill Mismatch and Structural Unemployment. Working paper.Google Scholar
Shimer, R. (2005) The cyclicality of hires, separations, and job-to-job transitions. Federal Reserve Bank of St. Louis Review 87, 493–507.Google Scholar
Straub, L. and Werning, I. (2015) Positive Long Run Capital Taxation: Chamley-Judd Revisited. Working paper.CrossRefGoogle Scholar