The Effect of the Recent Inheritance Tax Reform on Bequest Behaviour in Japan

This paper examines the behavioural response of households to wealth transfer taxation using household survey data from Japan, with particular attention being paid to the implications of different bequest motives that households may have. The data reveal that relatively few households plan to reallocate the newly taxable amount of wealth to their own consumption or inter vivos transfers in response to the recent lowering of the basic deduction of the inheritance tax. Our analysis shows that this partly reflects the fact that a relatively large share of households have no or a weak bequest motive in Japan. However, our estimation results also suggest that parents with an altruistic bequest motive are more likely to avoid an increase in their children's tax bill by reallocating the newly taxable amount of wealth to inter vivos transfers than those with no or a weak bequest motive. By contrast, parents with an exchange bequest motive are more likely to respond to the tax reform by reallocating the newly taxable amount of wealth to their own consumption, though they seem to exhibit a similar response to those with an altruistic bequest motive in some cases.