Can Inheritances Alleviate the Demographic Burden?

August 1, 2001

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Format: Chicago

Erik Lueth. Can Inheritances Alleviate the Demographic Burden?, (USA: International Monetary Fund, 2001) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

With pay-as-you-go schemes in place, population aging will impose a heavy fiscal burden on young and future cohorts. However, these cohorts may also profit from larger inheritances as the number of heirs declines. The aim of this paper is to explore the compensating potential of private intergenerational transfers. A dynamic, computable general equilibrium model is employed allowing for a pay-as-you-go scheme, various bequest motives, and an endogenous labor supply. The findings are twofold. First, the increase in future generations' inheritances is insufficient to make up for the demographic burden. Second, increasing the inheritance tax during the demographic transition may alleviate the fiscal burden of future generations by improving overall efficiency.

Subject: Aging, Demographic change, Expenditure, Labor, Labor supply, Population and demographics, Social assistance spending, Tax allowances, Taxes

Keywords: Aging, Bequests, Budget constraint, Capital income share, Computable GEM, Demographic change, Factor income, Labor disincentive effect, Labor supply, Offspring's net wage, Opportunity cost, Pay-as-you-go scheme, Price effect, Price movement, Social assistance spending, Tax allowances, Tax burden, Taxation, Utility function, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/097
Stock No:

WPIEA0972001
ISBN:

9781451852028
ISSN:

1018-5941

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