We study a growth model with two types of agents who are heterogeneous in their degree of family altruism. We prove that every equilibrium path of consumption, bequests, and capital converges to a unique steady state and study the effect of altruism on the properties of steady-state equilibrium. We show that aggregate income is positively related to both level of altruism and altruism heterogeneity. When altruism heterogeneity is low or moderate, income inequality follows an inverse U-shaped pattern relative to the level of altruism. These observations are consistent with the cross-country Kuznets curve linking different steady-state levels of income to steady-state levels of inequality. When altruism heterogeneity is high, income inequality decreases with the level of altruism. Our results suggest that heterogeneous altruism is a possible mechanism linking economic growth and income inequality.

Imagine two friends. Anna inherits nothing and works for every penny she has, while Mary inherits millions. How should a world that respects individual autonomy and private property rights treat Anna’s earnings and Mary’s inheritance? Should it tax them the same, or tax one more heavily than the other? If the latter, which one? The conventional wisdom holds that although some “right” libertarian theories justify taxing income, none justify taxing inheritances. Such taxes are “expropriations” and “an especially cruel injury” that “run[] roughshod over [a] deceased’s interest in the ends his property will serve.” This essay explores the standard libertarian objections to taxing gifts and bequests and argues that libertarians overstate their case when distinguishing the taxation of gratuitous transfers from other types of taxation. At minimum, the benefit theory of taxation embraced by many minimal statists and classical liberals mandates that the receipt of gifts and bequests should be taxed to the recipient. Moreover, the goals of curbing inherited political power and preventing wealthy families from insulating their members from market competition provide two additional explanations for why taxing inheritances to recipients is compatible with classical liberal values.

The previous conclusion that a uniform lump-sum estate tax could implicitly provide annuity income was reached by ignoring the inheritance that agents receive. However, when the agents leave a bequest, they should also receive an inheritance from their parents. Thus, we make the inheritance received—bequests left cycle complete and fully endogenous. Interestingly, the differential timing and sizes of inheritance then generate unequal wealth effects even with actuarially fair annuity markets. To restore the first best, the government has to adopt an estate tax regime that is no longer uniform. Thus, once bequest is fully endogenized, a uniform estate tax no longer bears the annuity role. Further, the differential timing in receiving inheritance creates an unequal wealth distribution, which is also nonstationary. The paper manifests the importance of accounting for and tracing the inheritance received by agents for any crucial policy recommendation.

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.

This paper studies the role of taxation and bequest motives in households’ demand for life insurance. We develop a stylized three-period life cycle model of life insurance demand and test its predictions regarding tax changes and bequests motives. An unexpected halving of the tax exemption limit for interest and dividend income in Germany allows us to identify the impact of changes in taxation on the demand for life insurance in a difference-in-differences setting. In line with our theoretical predictions, we document that ownership of life insurance products increased significantly among households affected by the reform. We also find some evidence of a more pronounced response among households with stronger bequest motives.

In this paper we explore how income inequality affects growth in a dynastic family model with bequests (physical capital) and investment in human capital for children. For tractability, we abstract from factor markets and focus on household production, which is prevalent in developing countries. We explore a joint distribution of bequests and human capital and track the evolution of income distribution across generations. We show that initial inequality has a positive indirect effect on average output growth by lowering the ratio of physical to human capital, besides its standard negative direct effect. If education is mainly privately (publicly) provided, then income inequality retards (promotes) growth outside the balanced growth path. On the balanced growth path, inequality always hinders growth.

Inter-vivos financial transfers from older parents to their adult children are widespread in the United States. Childless people may simply make fewer transfers. On the other hand, because their giving is away from children, their decisions are more complex in that there are multiple potential targets of approximately equal attractiveness. Using data for 1996 to 2004 from the United States Health and Retirement Study, this article examines the differences between parents and childless older people in financial transfers to people other than their children. The results show that, overall, parents tend to give less than the childless to other people. However, some variation is found depending on the nature and target of the gift. Having children does not affect giving to charities but does reduce the prevalence of giving to parents, but not nearly as much as the reduction in giving to family and friends. It can therefore be concluded, first that there is little substitution between personal and impersonal transfers; secondly, that the sense of obligation to parents is not reduced by giving to charities or to children; and thirdly, that having children reduces the need to satisfy the desire for family and social ties by means of links to family and friends.