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Taxing more (large) family bequests: why, when, where?

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  • Luc Arrondel

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • André Masson

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

There is a capital taxation puzzle in most developed countries. Since the 1960s, revenues from wealth transfer taxation have been especially low and decreasing as a percentage of GDP, even to the extent of disappearing in quite a number of cases; by contrast, lifetime wealth or capital taxation generates much higher revenues and shows no decreasing trend. The full tax puzzle is certainly not easy to explain. Many usual explanations of the aversion to wealth transfer taxation also imply limited lifetime capital taxation: they cannot justify the very strong collective preference for lifetime capital taxation observed in most countries. On the other hand, capital market imperfections may explain higher levels of lifetime capital taxation, but not the diverging trends of the two components of capital taxation. We think that a key explanatory factor of the tax puzzle in general and of the growing unpopularity of wealth transfer taxation in particular stems from the rising role of family values and links: the family appears to be the only safe investment nowadays in the face of risky globalized markets and the feared retrenchment of the welfare state. Any realistic reform must take this social and political constraint into account. Most reformist economists think that lifetime wealth or capital taxation could act as quite an efficient substitute for too unpopular taxes on wealth transfers. We offer an alternative solution which recommends heavier and more progressive taxation on family inheritances (only) while allowing for various legal loopholes to avoid the tax. It could hence prompt parents driven by family altruism to increase (early) inter vivos transfers to their progeny and people driven by social altruism to make more charitable gifts and bequests, and would bring in additional and welcome revenues.

Suggested Citation

  • Luc Arrondel & André Masson, 2013. "Taxing more (large) family bequests: why, when, where?," Working Papers halshs-00834189, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00834189
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00834189
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    Cited by:

    1. 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.
    2. Ivo Bischoff & Nataliya Kusa, 2017. "Citizens‘ preferences for a tax exemption for caregivers in inheritance taxation – an empirical analysis using German survey data," MAGKS Papers on Economics 201704, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. André Masson, 2015. "L’épargnant propriétaire face à ses vieux jours," Revue française d'économie, Presses de Sciences-Po, vol. 0(2), pages 129-177.
    4. Savina Princen & Athena Kalyva & Alexander Leodolter & Cécile Denis & Adriana Reut & Andreas Thiemann & Viginta Ivaskaite-Tamosiune, 2020. "Taxation of Household Capital in EU Member States Impact on Economic Efficiency, Revenue and Redistribution," European Economy - Discussion Papers 130, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. 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.

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