Can Inheritances Alleviate the Demographic Burden?
August 1, 2001
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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.
Subject: Aging, Demographic change, Expenditure, Labor, Labor supply, Population and demographics, Social assistance spending, Tax allowances, Taxes
Keywords: Aging, Bequests, budget constraint, capital income share, computable GEM, Demographic change, factor income, labor disincentive effect, Labor supply, offspring's net wage, opportunity cost, pay-as-you-go scheme, price effect, price movement, Social assistance spending, Tax allowances, tax burden, Taxation, utility function, WP
Pages:
27
Volume:
2001
DOI:
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Issue:
097
Series:
Working Paper No. 2001/097
Stock No:
WPIEA0972001
ISBN:
9781451852028
ISSN:
1018-5941
