Optimal Taxation When Children's Abilities Depend on Parents' Resources

Alexander  Gelber; Matthew  Weinzierl

Abstract

Empirical research suggests that parents' economic resources affect their children's future earnings abilities. Optimal tax policy therefore treats future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the intergenerational transmission of earnings ability in the United States, and use the model to simulate such an optimal policy numerically. The optimal policy in this context is more redistributive toward low-income parents than existing U.S. tax policy. It also increases the probability that low-income children move up the economic ladder, generating a present-value welfare gain of one and three-quarters percent of consumption in our baseline case.

Citation:

Gelber, Alexander, and Matthew Weinzierl. "Optimal Taxation When Children's Abilities Depend on Parents' Resources." National Tax Journal 69, no. 1 (March 2016): 11–40. (Winner, Richard A. Musgrave prize for best paper published in the NTJ. Also HBS Working Paper 13-014 and NBER Working Paper 18332.)

More from the Author

Case | HBS Case Collection | February 2014 (Revised October 2019)

Should Corporate Profits Be Taxed? (A)

Matthew Weinzierl, Katrina Flanagan and Michael Cianellli

Taxing corporations is popular, but why? Corporations do not bear the burden of taxes, people do, and the incidence of the corporate income tax burden is likely to be far different from what many of its supporters assume.
Instructors may also obtain a Teaching Note, written by this case's author, that provides suggestions for using this case effectively in the classroom.

Keywords: Economic versus statutory incidence; Basics of corporate taxation; Business Ventures; Taxation; Profit;

Citation:
Weinzierl, Matthew, Katrina Flanagan, and Michael Cianellli. "Should Corporate Profits Be Taxed? (A)." Harvard Business School Case 714-033, February 2014. (Revised October 2019.) View Details

Cite View Details Educators Purchase Related
Supplement | HBS Case Collection | October 2019

Should Corporate Profits Be Taxed? (B)

Matthew C. Weinzierl and Michael Cianelli

Citation:
Weinzierl, Matthew C., and Michael Cianelli. "Should Corporate Profits Be Taxed? (B)." Harvard Business School Supplement 720-015, October 2019. View Details

Cite View Details Related
Case | HBS Case Collection | February 2015 (Revised August 2019)

Equality of Opportunity and Outcome in the U.S.

Matthew Weinzierl and Alastair Su

Equality of opportunity is endorsed universally even though, or more likely because, it can mean such different things to different people. What definition of equality of opportunity ought to figure into policy decisions? How close, or far, is the United States from providing equal opportunity?
Instructors may also obtain a Teaching Note, written by this case's author, that provides suggestions for using this case effectively in the classroom.

Keywords: equality of opportunity; justice; Opportunities; Equality and Inequality; Policy; United States;

Citation:
Weinzierl, Matthew, and Alastair Su. "Equality of Opportunity and Outcome in the U.S." Harvard Business School Case 715-028, February 2015. (Revised August 2019.) View Details

Cite View Details Educators Purchase Related

Faculty & Research

Optimal Taxation When Children's Abilities Depend on Parents' Resources

Abstract

Citation:

About the Author

More from the Author