Fair inheritance taxation

We study the optimal taxation of bequests in a successive-generation model in which individuals have heterogeneous preferences over their consumption and the net-of-tax bequest received by their heir. We show that it is possible to reconcile the views that children should not be penalized by the lack of altruism of their parents, and parents should be free to choose their bequests. The resulting optimal non-linear inheritance tax scheme collects money and redistributes it through a non-negative demogrant, and does not tax, and, in some cases, subsidizes bequests lower than that of the poorest altruistic individual.