Behavioral responses to inheritance taxation – A review of the empirical literature

Increasing wealth inequality and concentration, together with the search for options to secure long-term sufficiency of tax systems in face of aging societies, have recently moved the taxation of inheritances into the spotlight. The question if and to what extent behavioral responses may undermine the revenue potential of inheritance taxes is central for policy design. Empirical evidence has been growing recently but is still rather limited. This survey of the empirical literature finds the size of the impact of inheritance taxation on wealth accumulation and residential choice, tax planning and avoidance as well as inter vivos transfers to range from modest to large. On the one hand, a considerable number of studies arrives at moderate responses for the various margins studied. On the other hand, elder persons and particularly the very wealthy react strongly to inheritance taxation. Moreover, tax planning, avoidance and evasion responses appear to be more pronounced than real responses. Overall, the empirical evidence on behavioral responses to inheritance taxation is patchy and characterized by considerable research gaps.