Goupille Presents The Optimal Inheritance Tax Rate Is 55%–70% Today At UC-Berkeley

Jonathan Goupille (Paris School of Economics) presents Behavioral Responses to Inheritance Tax (with Jose Infante (AXA France)) at UC-Berkeley today as part of its Robert D. Burch Center for Tax Policy and Public Finance Seminar:

This paper investigates behavioral responses to inheritance taxation in an inter-temporal framework. Our empirical strategy exploits original quasi-experimental variations created by the French preferential tax scheme for inheritance. The analysis is based on first-time access to a unique longitudinal data set of preferential tax savings from Axa over the period 2003-2013.

We obtain two main results. First, we estimate simultaneously timing responses in the short and medium-term using an innovative bunching approach. We document large bunching leading to important timing responses in the short term but modest inter-temporal shifting in the medium term. Second, we use a difference-in-differences approach to estimate real and shifting among asset portfolio responses. We find compelling evidence of a negative but small effect of inheritance taxation on wealth accumulation at the individual level. Consistent with our estimated elasticity of taxable bequest, we find that optimal inheritance tax rate might be as large as 55%–70%.

Our empirical findings shed a new light behind wealth accumulation and bequest motives. Our findings can not be supported by the desire to retain control over wealth and may better be explained by denial of death. Our results can be rationalized by an inter-temporal model of wealth accumulation with two assets. This model is able to take into account the different behavioral responses to taxation occurring over time and between assets.