School of Economics

Invites you to a

Macroeconomics and Trade seminar presented by

Andrés Bellofatto
(University of Queensland)

Wealth Taxation and Life Expectancy

Wednesday 8 November 2023

2:00pm – 3.30pm

 Level 6 Seminar Room (650)

A02 Social Sciences Building
Camperdown Campus

The University of Sydney NSW 2006

Zoom: 840 5325 2777

This paper studies how should fiscal policy share longevity risk, by developing and quantifying a dynamic Mirrlees model with altruism. My analysis concentrates on a largely overlooked fiscal tool for providing insurance against lifespan risk: taxes on wealth, in the form of savings and bequests. I derive novel formulas linking optimal taxes on savings and bequests to the degree of annuity market imperfections at the optimum. In the presence of a positive correlation between productivity and life expectancy, optimal annuity loadings are positive in expectation. This creates a force not only for taxing savings but also for subsidizing bequests, thus revisiting the conventional view whereby imperfect annuitization rationalizes high taxes on inheritances. When calibrating the model to US data, I find that the forces of differential longevity on optimal wealth taxes are commensurate with statutory levels of wealth taxation in developed countries. Relying on suboptimal policies which do not exploit differential longevity risk may lead to welfare losses of 0.2% of dynastic consumption, and to a rise of more than 40% in the consumption Gini coefficient at steady state.

For further information contact: Macroeconomics and Trade seminar series coordinator Dr James Graham (james.a.graham@sydney.edu.au)

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