The distribution of wealth and redistributive policies
In this paper we study theoretically the dynamics of the distribution of
wealth in an Overlapping Generation economy with bequest and various forms
of redistributive taxation. We characterize the transitional dynamics of the
wealth distribution and as well as the stationary distribution.
We show that, in our economy, the stationary wealth distribution is a power
law, a Pareto distribution in particular.
Wealth is less concentrated (the Gini coefficient is lower) for both higher
capital income taxes and estate taxes, but the marginal effect of capital
income taxes is much stronger than the effect of estate taxes.
Finally, we characterize optimal redistributive taxes with respect to an
utilitarian social welfare measure. Social welfare is maximized short of
minimal wealth inequality and with zero estate taxes.
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