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The vanishing bequest tax. The Comparative Evolution of Bequest Taxation in Historical Perspective

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  • Graziella Bertocchi

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Abstract

Bequest tax revenues have been constantly declining in all OECD countries for at least seventy years. We propose an explanation which is based on a dynamic politico-economic model where the evolution of bequest taxation is determined by wealth inequality. Since economic development induces a growing role of labor income and thus a reduction of wealth inequality, bequest taxation is reduced over time. Our model also explains cross-country differences in the level and speed of adjustment of the tax, by embedding structural reallocation from agriculture to manufacturing and a consequent shift of the tax base from easy-to-tax land to hard-to-tax capital. This implies a lower tax level, and a slower equalization-induced tax reduction, the higher is the tax avoidance rate and the less developed is the economy. Finally, the introduction of franchise restrictions which are gradually lifted over time allows the model to reproduce the humped-shaped long-term evolution of bequest taxation starting from the nineteenth century for those countries that are now modern industrial democracies, and also helps to explain the discrepancies currently observed between tax systems in developed and underdeveloped countries.

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Bibliographic Info

Paper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 005.

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Length: pages 32
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:mod:recent:005

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Web page: http://www.recent.unimore.it/
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Keywords: Bequest Tax; Inequality; Structural Reallocation; Redistribution; Voting;

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Cited by:
  1. Jappelli, T. & Padula, M. & Pica, G., 2011. "GINI DP 21: Transfer Taxes and Inequality," GINI Discussion Papers 21, AIAS, Amsterdam Institute for Advanced Labour Studies.
  2. Marius Brülhart & Raphaël Parchet, 2010. "Alleged Tax Competition: The Mysterious Death of InheritanceTaxes in Switzerland," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 10.04, Université de Lausanne, Faculté des HEC, DEEP.
  3. Bas van Bavel & Ewout Frankema, 2013. "Low Income Inequality, High Wealth Inequality.The Puzzle of the Rhineland Welfare States," Working Papers 0050, Utrecht University, Centre for Global Economic History.
  4. Richard Bird, 2008. "Tax Challenges Facing Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0802, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  5. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
  6. Brülhart, Marius & Parchet, Raphaël, 2011. "Alleged Tax Competition: The Mysterious Death of Bequest Taxes in Switzerland," CEPR Discussion Papers 8665, C.E.P.R. Discussion Papers.
  7. José Mª Durán Cabré & Alejandro Esteller Moré, 2007. "An empirical analysis of wealth taxation: Equity Vs.tax compliance," Working Papers XREAP2007-03, Xarxa de Referència en Economia Aplicada (XREAP), revised Jun 2007.

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