Wealth Distribution and Optimal Inheritance Taxation in Life-Cycle Economies with Intergenerational Transfers

We introduce intergenerational transfers into a general equilihrium
life-cycle model in order to explain observed levels of wealth
heterogeneity. In our overlapping generations model, heterogenous
agents face uncertain lifetime and leave both accidental and
voluntary bequests to their cinldren. Furthermore, agents face
stochastic employment opportunities. The model is calibrated with
regard to the characteristics of the US economy. Our resuits
indicate that hequests onl account for a sniall proportion of
ohserved wealth heterogeneitv. The introduction of an inheritance
tax increases both welfare are measured by the average value of the
newborn and equality of the wealth distribution. Preliminary
versions of this paper have been presented at conference on
'Intergenerational transfers, taxes and the distribution of wealth´
in Uppsala 1999 and the Econoinetric Societv European Meetirig in
Santiago dc Compostela 1999. We would like to thank Michael
Kaganovieli. John Laitner, James Smith, Frank Stafford, and Carl
Cristian von Weizsäcker for comments on earlier versions of the
paper. All remaining errors are ours.