Wealth distribution and optimal inheritance taxation in life-cycle economies with intergenerational transfers

Intergenerational transfers are introduced into a general equilibrium Life- cycle model in order to explain observed levels of wealth heterogeneity. In our overlapping generations model, heterogenous agents face uncertain life time and leave both accidental and voluntary bequests to their children. Fu rthermore, agents face stochastic employment opportunities. The model is ca librated with regard to the characteristics of the US economy. Our results indicate that bequests only account for a small proportion of observed weal th heterogeneity. The introduction of an inheritance tax increases both wel fare, as measured by the average lifetime utility of a newborn, and equalit y of the wealth distribution.