Non-linear taxation of bequests, equal sharing rules and the tradeoff between intra- and inter-family inequalities

This paper studies the design of the tax and regulatory regime applied to bequests. Bequests are observable, while parent's wealth and children's earning abilities are not. Parents know their children's earning abilities. Parents are altruistic; their utility depends on their children's utilities, but weights may differ between children. The optimal tax schedule strikes a balance between the (often) conflicting 'incentive' and 'corrective' effects. When parents attach identical weights to their children, an estate taxation is sufficient. Equal sharing rules appear to be appropriate only in extreme cases such as in presence of the so-called Cinderella effect. (C) 2001 Elsevier Science B.V. All rights reserved.