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The Vanishing Bequest Tax: The Comparative Evolution of Bequest Taxation in Historical Perspective

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  • Bertocchi, Graziella

    (University of Modena and Reggio Emilia)

Abstract

Several countries have recently abolished or significantly reduced their taxes on bequests. Bequest taxes, on the other hand, were among the first to be introduced when modern systems of taxation were developed at the end of the nineteenth century. We propose an explanation for these facts which is based on a dynamic political economy model where redistribution is determined not only by wealth inequality but also by sectoral reallocation from agriculture to manufacturing. The model shows that the dynamics of capital accumulation induce a reduction of wealth inequality, which is further accelerated by the redistributive impact of the bequest tax. Through a standard politico-economic mechanism, wealth equalization pushes toward a reduced role of the bequest tax. At the same time, however, a second mechanism is at work, with structural reallocation from agriculture to manufacturing shifting the tax base from hard-to-avoid taxes on land toward easy-to-avoid taxes on capital. The differential treatment of land and capital introduces a source of asymmetry in the tax system which interferes with the determination of the dynamic political equilibrium of the model. Its effect is to compress bequest taxation but also to delay its gradual reduction due to declining wealth inequality. A number of extensions to the basic model allow to match our theory with the long-term evolution of bequest taxation in modern democracies and with the drastic discrepancies currently observed between tax systems in developed and underdeveloped countries.

Suggested Citation

  • Bertocchi, Graziella, 2007. "The Vanishing Bequest Tax: The Comparative Evolution of Bequest Taxation in Historical Perspective," IZA Discussion Papers 2578, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp2578
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    2. José Mª Durán Cabré & Alejandro Esteller Moré, 2007. "An empirical analysis of wealth taxation: Equity vs. tax compliance," Working Papers 2007/1, Institut d'Economia de Barcelona (IEB).
    3. Paola Profeta & Simona Scabrosetti & Stanley Winer, 2014. "Wealth transfer taxation: an empirical investigation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 720-767, August.
    4. Luigi Aldieri & Gennaro Guida & Maxim Kotsemir & Concetto Paolo Vinci, 2019. "An investigation of impact of research collaboration on academic performance in Italy," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(4), pages 2003-2040, July.
    5. Richard M. Bird, 2008. "Tax Challenges Facing Developing Countries," Working Papers id:1618, eSocialSciences.
    6. Gabrieli, Tommaso, 2012. "Inequality, Intergenerational Mobility and Redistributive Policies under Endogenous Information," The Journal of Economic Asymmetries, Elsevier, vol. 9(1), pages 23-49.
    7. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
    8. Kudła Janusz & Woźniak Rafał & Walczyk Konrad & Dudek Maciej & Kruszewski Robert, 2023. "Determinants of inheritance and gifts taxation in the European Union," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(3), pages 225-242, September.
    9. Marius Brülhart & Raphaël Parchet, 2010. "Alleged Tax Competition: The Mysterious Death of InheritanceTaxes in Switzerland," Cahiers de Recherches Economiques du Département d'économie 10.04, Université de Lausanne, Faculté des HEC, Département d’économie.
    10. Marcon, Giulio, 2021. "La ricchezza in Italia Rapporto di ricerca [Wealth in Italy. Research Report]," MPRA Paper 107809, University Library of Munich, Germany.
    11. Fabrizio Battisti & Orazio Campo & Fabiana Forte, 2020. "A Methodological Approach for the Assessment of Potentially Buildable Land for Tax Purposes: The Italian Case Study," Land, MDPI, vol. 9(1), pages 1-22, January.
    12. 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.
    13. 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.
    14. 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.
    15. Bellettini Giorgio & Taddei Filippo & Zanella Giulio, 2013. "Bequest taxes, donations, and house prices," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 355-379, October.

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    More about this item

    Keywords

    structural reallocation; inequality; redistribution; voting; bequest tax;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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