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Can Inheritances Alleviate the Fiscal Burden of an Aging Population?

Author/Editor: Lueth, Erik
Authorized for Distribution: August 1, 2001
Electronic Access: Free Full Text (PDF file size is 929KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: With pay-as-you-go schemes in place, population aging will impose a heavy fiscal burden on young and future cohorts. However, these cohorts may also profit from larger inheritances as the number of heirs declines. The aim of this paper is to explore the compensating potential of private intergenerational transfers. A dynamic, computable general equilibrium model is employed allowing for a pay-as-you-go scheme, various bequest motives, and an endogenous labor supply. The findings are twofold. First, the increase in future generations' inheritances is insufficient to make up for the demographic burden. Second, increasing the inheritance tax during the demographic transition may alleviate the fiscal burden of future generations by improving overall efficiency.
Series: Working Paper No. 01/97
Subject(s): Aging | Transfer of real resources | Taxation | Social policy | Labor supply | Economic models
Author's keyword(s): Bequests | taxation | computable GEM
    Published:   August 1, 2001        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0972001   Pages:   27
    Price:   US$15.00
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