Inherit Money or Brains? The Role of Inheritance and Its Taxation in OLG Analysis

Abstract

Motivated by ongoing debates about the effectiveness of inheritance taxation in reducing wealth concentration—especially in contexts marked by strong family ties and rising wealth accumulation—this study employs an overlapping generations model calibrated to Polish data to investigate whether such policies truly mitigate inequality. By incorporating ex ante heterogeneity and human capital investment, I find that increasing inheritance taxes while lowering labor taxes fails to improve welfare or lessen inequality. Instead, these changes distort saving incentives, disproportionately lowering retirees’ incomes and intensifying disparities across generations. Although redistributing tax revenues can benefit certain groups, it ultimately widens inequalities between retirees and working-age households. These results underscore the need for careful policy design and question the political feasibility of inheritance taxation, suggesting that inheritance taxation alone is insufficient as a policy tool for narrowing inequality.