Tuesday, February 23, 2010

Does estate taxation matter at all?

In the United States, and elsewhere, there is an endless debate on whether estates should be taxed. Yes, if bequests are accidental and redistribution is indicated. No if taxation would limit asset build up and entrepreneurship. What impact does estate taxation actually have?

Tullio Jappelli, Mario Padula and Giovanni Pica look at the repeal of the estate tax in Italy in 2001 and use micro-data to compare the size of real estate inheritances before and after the reform. They concentrate on real estate because 85% of the wealth of elderly is in real estate. The data is also interesting because it includes households who were not subject to estate taxation before 2001. This is important, as the reform was a big package that included other tax decreases. The authors find the two percentage points more (from about 30%) leave real estate to their descendants. This is not large, and it is not clear whether this is the consequence of previous tax avoidance and tax evasion, a prevalent problem in Italy, rather that increased estates.

1 comment:

Tim Worstall said...

I'd be very worried about using a country with Napoleonic inheritance laws to measure changes in real property being handed on.

For if you've got real property it must, by law, be divided among your children and their children. You cannot will away real property in the same way that you can in Common Law countries.