Positive effects of wealth accumulation

It more than clear that there is a strong link between inheritance taxes and wealth accumulation. The higher are the taxes, the less wealth is transferred to the recipient, thus driving the total wealth possessed by the private individuals down. Knowing that most of the taxes collected by state are used up for short-run consumption / spending and not invested into capital, we can easily conclude that inheritance taxes directly lower the total wealth accumulated in the society (as opposed to usual effect of taxes which only redistributes wealth), as part of the wealth is taken away for short-run purposes. In fact, this is not the only channel how inheritance taxes affect the total wealth (or, more precisely, capital) stock. The other channel is the propensity to save - inheritance taxes deter the willingness to accumulate savings. When individual knows that his private property will be taxed after his death before getting to his heirs, he is more likely to consume more today. The utility that an individual gets diminishes when the estate left to his heirs is taxed, because the net amount of inheritance decreases. Hence, he is very likely to substitute for some consumption. The money that would have been saved will be consumed. That has a negative effect on investment and capital accumulation. Now, that we have established that inheritance taxes have a negative effect on wealth and capital accumulation, we will show what are the positive effects of wealth accumulation, and how, in fact, inheritance taxes have quite a devastating effect on the economy. Economists have acknowledged the importance of savings in the society centuries ago, all conventional books on macroeconomics acknowledge that, too [[http://books.google.no/books?id=467QG5353JMC&pg=PA374&lpg=PA374&dq=importance+of+savings+macroeconomics&source=bl&ots=T_EM8XsYIX&sig=HYG2u_PJXKjwDPS8JKVKvHs3YI4&hl=lt&ei=hduYSp6wFeSZjAfciuWfBQ&sa=X&oi=book_result&ct=result&resnum=1#v=onepage&q=&f=false]]. When savings of individuals are put in financial intermediaries, businesses can borrow them and invest. Investment in turn builds up capital. Capital accumulation is one of the keys to prosperity – the more capital we have, the more output we can create with it. More production results in higher wealth of the people – each of us gets more goods and services than he used to get before. Hence, savings are essential for economic growth, as they work as a base for starting the cycle of the growth to prosperity. This is exactly why the third-world countries are lagging behind - they usually do not have a large capital stock, and this is exactly why most of the money piled in Africa and other countries as financial aid is mainly directed to building up infrastructure and other capital-intensive forms - this is the only way to ensure sustainable growth in the future. To sum up, wealth accumulation ensures that a society will be able to get more productive, and will not get poorer when the existing capital depreciates. The second positive effect of wealth accumulation is the ability to sustain during tough economic times. Knowing that the "crisis examples" are very popular these times, we can't help but bring up one. If one looks into the Baltic states, where the economic downturn was one of the most severe in the world [[http://www.wtnrradio.com/story.php?story=361]], she would notice that the propensity to save was very low, if not negative in this region. There was not real wealth accumulation, it was a consumption-based world. Thus, when the income went down and the lending bubble busted, the societies in the region suffered "quite a significant" shock . There was no wealth accumulated to help absorbing the shock. Now, if one looks into the countries least affected by the crisis (same article as above) - it's Qatar, Yemen, Turkmenistan and Uzbekistan. One can easily guess why they were least affected - they had a lot of wealth accumulated from the oil exports. That wealth serves as a pillow to soften the downturn. Of course, the wealth from inheritance will never provide an effect of the same significance as does the wealth from oil exports due to difference in accumulation period and the magnitude itself, but the core principle is the same. To conclude, we have shown that inheritance taxes lower wealth accumulation through two channels - propensity to save and direct wealth conversion to spendings. Then, we analyzed the effects of wealth accumulation to the economy, and showed that it both provides a base for sustainable economic growth and ensures that economies are not hit very hard during downturns. Thus, we conclude that abolishment of inheritance taxes will lead to sustainable economic growth which, after all, is one of the main goals for any government.