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Taxing transitions: Inheritance tax and family firm succession

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  • Krug, Philipp
  • Langenmayr, Dominika

Abstract

In many OECD countries, family firms face lower or no succession taxes if they fulfill continuation requirements. We study the effects of such preferential treatment in a two-generation model. Preferential treatment of continued firms leads to more entrepreneurship and higher wages, as entrepreneurs invest more as they value passing on a larger firm. However, more low-ability heirs continue the firm, leading to efficiency losses. In the presence of financial frictions, richer (but less able) heirs may invest more than buyers from outside.

Suggested Citation

  • Krug, Philipp & Langenmayr, Dominika, 2025. "Taxing transitions: Inheritance tax and family firm succession," Journal of Economic Behavior & Organization, Elsevier, vol. 238(C).
    • Handle: RePEc:eee:jeborg:v:238:y:2025:i:c:s0167268125003579
    DOI: 10.1016/j.jebo.2025.107238
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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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