Making Bequests Without Spoiling Children: Bequests as an Implicit Optimal Tax Structure and the Possibility That Altruistic Bequests are not Equaliz

Abstract

This paper examines the bequest\gift behavior of altruistic parents who do not know their children's abilities and cannot observe their children's work effort. Parents are likely to respond to this information problem by making larger bequests to higher earning children and by using their transfers implicitly either to tax at the margin low earning children or to subsidize at the margin high earning children. These implicit tax rates may be quite large, despite the fact that total transfers are small. The paper suggests that labor supply studies should take into account potential implicit family taxation as wall as official government taxation. In addition, the fact that the family may play an implicit role in taxation means that there may be less need for the government to play such a role.