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Consumption Tax Policy and the Taxation of Capital Income$
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Raymond G. Batina and Toshihiro Ihori

Print publication date: 2000

Print ISBN-13: 9780198297901

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780198297901.001.0001

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Consumption Taxation in the Presence of Bequests

Consumption Taxation in the Presence of Bequests

Chapter:
(p.269) 11 Consumption Taxation in the Presence of Bequests
Source:
Consumption Tax Policy and the Taxation of Capital Income
Author(s):

Raymond G. Batina

Toshihiro Ihori

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198297901.003.0011

This chapter talks about the simple life cycle model. There are several models which are concerning with bequeathing and the results of policy analysis depend on the motive for bequeathing. In a situation where the giving parent cares about the size of the bequest, the bequest acts like parental consumption and should be taxed under a consumption tax policy. On the contrary, if the giving parent cares about the full income of the offspring, then the bequest is more like an asset and should not be taxed under a consumption tax. This could maintain neutrality. However, if the population is made up of different people with different motives for bequeathing, it will be impossible to impose a consumption tax. Therefore, a proportional consumption tax will not be completely neutral with respect to decision-making in the existence of bequest.

Keywords:   consumption tax, bequest, life cycle model, parental consumption, motive

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