This paper finds that previous conclusions that a uniform lump-sum estate tax could provide annuity income were reached by not including the bequest income that households receive. We argue that since agents leave behind bequest, they should also receive bequest income from their parents. Moreover, the differential timing and sizes of bequest income will generate unequal wealth effects even with the actuarially fair annuity markets. To restore the first best allocations, the government has to adopt an estate tax regime that is no longer uniform: the estate would depend on both the timing and sizes of bequests that households receive. Thus the uniform estate tax no longer bears the annuity role. The paper reemphasizes the importance of accounting for bequest income received by households in any model that discusses intergenerational transfers and related policies.
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