Skip to main content Accessibility help
×
Home
Hostname: page-component-544b6db54f-8tjh8 Total loading time: 0.564 Render date: 2021-10-19T13:28:50.752Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }

ESTATE TAXATION AND HUMAN CAPITAL WITH INFORMATION EXTERNALITIES

Published online by Cambridge University Press:  12 July 2018

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.

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.

Type
Articles
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

Acemoglu, D. (1996) A microfoundation for social increasing returns in human capital accumulation. Quarterly Journal of Economics 111, 779804.CrossRefGoogle Scholar
Acemoglu, D. and Angrist, J. (2000) How large are human-capital externalities? Evidence from compulsory schooling laws. NBER Macroeconomics Annual 15, 959.CrossRefGoogle Scholar
Bedard, K. (2001) Human capital versus signaling models: University access and high school dropouts. Journal of Political Economy 109, 749775.CrossRefGoogle Scholar
, 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, 425434.CrossRefGoogle Scholar
Chamley, C. (1986) Optimal taxation of capital income in general equilibrium with infinite lives. Econometrica 54, 607622.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, 137.Google Scholar
Fang, H. and Norman, P. (2006) Government-manded discrimination policies: Theory and evidence. International Economic Review 47, 361389.CrossRefGoogle Scholar
Farhi, E. and Werning, I. (2010) Progressive estate taxation. Quarterly Journal of Economics 125, 635673.CrossRefGoogle Scholar
Farhi, E. and Werning, I. (2012) Capital taxation: Quantitative explorations of the inverse euler equation. Journal of Political Economy 120, 398445.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, 105164.CrossRefGoogle Scholar
Golosov, M., Kocherlakota, N., and Tsyvinski, A. (2003) Optimal indirect and capital taxation. Review of Economic Studies 70, 569587.CrossRefGoogle Scholar
Holtz-Eakin, D., Joulfaian, D., and Rosen, H. (1993) The Carnegie conjecture: Some empirical evidence. Quarterly Journal of Economics 108, 413435.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, 420431.CrossRefGoogle Scholar
Joulfaian, D. and Wilhelm, M. O. (1994) Inheritance and labor supply. Journal of Human Resources 29, 12051234.CrossRefGoogle Scholar
Judd, K. L. (1985) Redistributive taxation in a simple perfect foresight model. Journal of Public Economics 28, 5983.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, 7298.CrossRefGoogle Scholar
Lange, F. and Topel, R. (2006) The social value of education and human capital. Handbook of the Economics of Education 1, 459509.CrossRefGoogle Scholar
Lockwood, B. (1991) Information externalities in the labour market and the duration of unemployment. Review of Economic Studies 58, 733753.CrossRefGoogle Scholar
Lucas, R. E. (1988) On the mechanics of economic development. Journal of Monetary Economics 22, 342.CrossRefGoogle Scholar
Pestieau, P. and Sato, M. (2008) Estate taxation with both accidental and planned bequests. Asia-Pacific Journal of Accounting and Economics 15, 223240.CrossRefGoogle Scholar
Piketty, T. and Saez, E. (2013) A theory of optimal capital taxation. Econometrica 81, 18511886.Google Scholar
Popov, S. V. and Bernhardt, D. (2012) Fraternities and labor market outcomes. American Economic Journal: Microeconomics 4, 116141.Google Scholar
Rauch, J. E. (1993) Productivity gains from geographic concentration of human capital: Evidence from the cities. Journal of Urban Economics 34, 380400.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, 493507.Google Scholar
Straub, L. and Werning, I. (2015) Positive Long Run Capital Taxation: Chamley-Judd Revisited. Working paper.CrossRefGoogle Scholar

Send article to Kindle

To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

ESTATE TAXATION AND HUMAN CAPITAL WITH INFORMATION EXTERNALITIES
Available formats
×

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

ESTATE TAXATION AND HUMAN CAPITAL WITH INFORMATION EXTERNALITIES
Available formats
×

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

ESTATE TAXATION AND HUMAN CAPITAL WITH INFORMATION EXTERNALITIES
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *