How to make a tax system regressive

Abstract

We study tax regressivity in a two-period model with intergenerational transfers via bequests, inter vivos gifts, and trust funds, where trusts require a large fixed cost and early setup. Only the very and super rich use all three channels, and paying the fixed cost to establish a trust is necessary for a declining average tax rate. Regressivity arises if and only any transfer allowance falls below a threshold.