Author ORCID Identifier
https://orcid.org/0000-0001-9547-9103
Keywords
bequests, gifts, taxes
Abstract
Economists predict transfer of wealth from one generation to the next due to increased global wealth. This transfer of wealth is predicted to widen already existing poverty gaps in some economies. Some economists have suggested the taxation of intergenerational transfers in a bid to increase government revenue and reduce the widening gaps between the poor and the rich. This study captures the key mechanisms at work in assessing the labour earnings reaction to changes in unearned income, emanating from gifts and bequests that heirs receive. Three theoretical models are developed to understand the labor earnings reaction with varying unearned income compositions. The tax effects on the transfer of intergenerational wealth are then decomposed. Further, the study uses specific parameters from the Canadian economy with other assumptions to quantitatively investigate the three theoretical models and examine the differences in utility, consumption and labour supply when gift and bequest taxes are applied to unearned income. The study concludes that heirs experience high levels of utility when gift and bequest taxes are applied by the government. Heirs tend to reduce labour hours supplied upon the receipt and taxation of transfers. An optimal combination of income and transfer taxes is necessary to maintain a productive work force in an economy.
Primary Advisor
M. Arbex
Program Reader
C. Trudeau
Degree Name
Master of Arts
Department
Economics
Document Type
Major Research Paper
Convocation Year
2023