Skip to main content

The impact of taxation on the distribution of wealth in an economy with changing population

Abstract

The paper investigates into the determinants of the personal distribution of income and wealth. In an overlapping generations model all individuals are assumed to be identical except for their inherited wealth. Since life time is random the bequest of an individual and thus the inherited stock of capital of its children are stochastic variables. Taxation and social security contributions affect life cycle savings, bequests, and, eventually, the distribution of income and wealth in the society. It is shown that, in general, higher tax rates reduce distributive inequality as long as the rate of interest is exogenously given. In steady state, however, where the rate of interest is determined endogenously, increasing taxation and higher social security payments both diminish the capital labor ratio so that the rate of interest rises. If this interest effect is strong enough then it may outbalance the tendency toward more equality because higher interest rates enhance initial differences in the distribution of both income and wealth and, eventually, the inequality in the distribution of income and wealth in the society.

This is a preview of subscription content, access via your institution.

References

  • Abel AB (1985) Precautionary saving and accidental bequests. Am Econ Rev 75:777–791

    Google Scholar 

  • Bevan DL, Stiglitz JE (1979) Intergenerational transfers and inequality. Greek Econ Rev 1:8–26

    Google Scholar 

  • Blinder AS (1973) A model of inherited wealth. Q J Econ 87:608–626

    Google Scholar 

  • Eckstein Z, Eichenbaum MS, Peled D (1985) The distribution of wealth and welfare in the presence of incomplete annuity markets. Q J Econ 100:789–806

    Google Scholar 

  • Fisz M (1980) Wahrscheinlichkeitsrechnung and Mathematische Statistik. VEB Verlag Deutscher Wissenschaften, Berlin

    Google Scholar 

  • Hurd MD (1987) Savings of the elderly and desired bequests. Am Econ Rev 77:298–312

    Google Scholar 

  • Hurd MD (1989) Mortality risk and bequests. Econometrica 57:779–813

    Google Scholar 

  • Kotlikoff L, Summers L (1981) The role of intergenerational transfers in aggregate capital accumulation. J Polit Econ 89:706–732

    Google Scholar 

  • Schwödiauer G, Wenig A (1989) Accidental bequests, social security and the distribution of wealth. In: Felderer B (ed) Einkommensverteilung and Bevolkerungsentwicklung. Duncker & Humblot, Berlin

    Google Scholar 

  • Straub M, Wenig A (1984) Human fertility and the distribution of wealth. In: Steinmann G (ed) Economic consequences of population change in industrialized countries. Springer, Berlin Heidelberg New York, pp 68–86

    Google Scholar 

  • Straub M, Wenig A (1987) On the construction of an index of bequest behavior. In: Eichhorn W (ed) Measurement in economics. Physica, Heidelberg, pp 453–476

    Google Scholar 

  • Thurow LC (1975) Generating inequality mechanisms of distribution in the US Economy. Basic Books Inc., New York

    Google Scholar 

  • Tomes N (1981) The family, inheritance, and the intergenerational transmission of inequality. J Polit Econ 89:928–958

    Google Scholar 

  • Wold HOA, Whittle P (1957) A model explaining the pareto distribution of wealth. Econometrica 25:591–595

    Google Scholar 

  • Yaari ME (1965) Uncertain lifetime, life insurance, and the theory of the consumer. Rev Econ Stud 32:137–150

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Schwödiauer, G., Wenig, A. The impact of taxation on the distribution of wealth in an economy with changing population. J Popul Econ 3, 53–71 (1990). https://doi.org/10.1007/BF00160417

Download citation

  • Received:

  • Accepted:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF00160417

Keywords

  • Interest Rate
  • Social Security
  • Stochastic Variable
  • Initial Difference
  • High Interest Rate