Discussion paper

DP12873 Socially Optimal Wealth Inequality

I discuss two alternative notions of social welfare (utilitarian and self-enforcing) in a dynastic model with heterogeneous and persistent degrees of parental altruism and evaluate the implied levels of consumption inequality. Then, I study a decentralization of planning optima in a competitive equilibrium where the only source of inequality arises from intergenerational wealth transmission and I show that the self-enforcing criterion implies a negative tax rate on the less altruistic individuals’ capital income.


Reichlin, P (2018), ‘DP12873 Socially Optimal Wealth Inequality‘, CEPR Discussion Paper No. 12873. CEPR Press, Paris & London. https://cepr.org/publications/dp12873