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The Impact of the Estate Tax on the Wealth Accumulation and Avoidance Behavior of Donors

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  • Joel Slemrod
  • Wojciech Kopczuk

Abstract

Using estate tax return data from 1916 to 1996, we investigate the impact of the estate tax on reported estates, which reflects the impact of the tax on both wealth accumulation and avoidance. An aggregate measure of reported estates is generally negatively correlated with summary measures of the level of estate taxation, holding constant other influences. In pooled cross-sectional analysis that makes use of individual decedent information, the relationship between the concurrent tax rate and the reported estate is fragile and sensitive to the set of instruments that are used to capture exogenous tax rate variation. However, the negative effect of taxes appears to be stronger for those who die at a more advanced age and with a will, both of which are consistent with the theory of how estate taxes affect altruistic individuals. Finally, we find that the tax rate that prevailed at age 45 or ten years before death is more clearly (negatively) associated with reported estates than the tax rate prevailing at death. Future research should concentrate on developing lifetime measures of the effective tax rates and on better measurements of the effective tax rate for married couples.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7960.

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Date of creation: Oct 2000
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Publication status: Published in William G. Gale, James R. Hines Jr., and Joel B. Slemrod (eds.), "Rethinking Estate and Gift Taxation," Washington, DC: Brookings Institution Press, 2001, 299-343.
Handle: RePEc:nbr:nberwo:7960

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  1. Feenberg, D.R. & Poterba, J.M., 1992. "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 92-16, Massachusetts Institute of Technology (MIT), Department of Economics.
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