Why do we ignore the best solution for improving unequal income distribution?

Abstract

Purpose

This paper aims to propose a tax reform that would reduce income taxes and other indirect taxes while at the same time increasing inheritance and estate taxes. Such a reform is economically very efficient and would certainly equalize income distribution.

Design/methodology/approach

A wide review of the death and inheritance taxes in the USA and Europe is presented.

Findings

Government's revenue from inheritance and gifts is lower than 1 percent of GDP. This is due mainly to a combination of considerable tax‐free allowances for the closest relatives and high thresholds where the top rates apply. No empirical examination of the effect of inheritance tax on economic growth or economic efficiency could be found.

Practical implications

Because inheritance taxes are economically efficient, they improve the immoral unequal income distribution drastically. Therefore, it should be concluded that inheritance tax must be implemented.

Originality/value

This paper discusses the various economic aspects of the proposed tax reform.

Citation

Nissim, B. (2007), "Why do we ignore the best solution for improving unequal income distribution?", International Journal of Social Economics, Vol. 34 No. 6, pp. 415-424. https://doi.org/10.1108/03068290710751821