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Estate Taxes, Life Insurance, And Small Business

Author

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  • Douglas Holtz-Eakin
  • John W. R. Phillips
  • Harvey S. Rosen

Abstract

Critics argue that the estate tax prevents the owners of family businesses from passing their enterprises to heirs because it is difficult to pay estate taxes without liquidating the business. Why don't owners purchase enough life insurance to meet their estate tax liabilities? We examine whether and how people use life insurance to deal with the estate tax. We find that, ceteris paribus, business owners purchase more life insurance than do other individuals. However, on the margin, their insurance purchases are less responsive to estate tax considerations, and they are less likely to have the wherewithal to meet estate tax liabilities out of liquid assets plus insurance. 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Douglas Holtz-Eakin & John W. R. Phillips & Harvey S. Rosen, 2001. "Estate Taxes, Life Insurance, And Small Business," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 52-63, February.
    • Handle: RePEc:tpr:restat:v:83:y:2001:i:1:p:52-63
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    Cited by:

    1. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
    2. Houben, Henriette & Maiterth, Ralf, 2009. "Inheritance tax-exempt transfer of German businesses: Imperative or unjustified subsidy? An empirical analysis," arqus Discussion Papers in Quantitative Tax Research 95, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. James R. Hines & Niklas Potrafke & Marina Riem & Christoph Schinke, 2019. "Inter vivos transfers of ownership in family firms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(2), pages 225-256, April.
    4. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
    5. Jeffrey Brown, 2001. "Are the Elderly Really Over-Annuitized? New Evidence on Life Insurance and Bequests," NBER Chapters, in: Themes in the Economics of Aging, pages 91-126, National Bureau of Economic Research, Inc.
    6. Joulfaian, David, 2014. "To own or not to own your life insurance policy?," Journal of Public Economics, Elsevier, vol. 118(C), pages 120-127.
    7. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
    8. Florian Dorn & Björn Kauder & Manuela Krause & Niklas Potrafke, 2017. "Die Erbschaftsteuer in Deutschland – Reformbedarf und Reformkompromiss," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(01), pages 33-40, January.
    9. Henriette Houben & Ralf Maiterth, 2011. "Erbschaftsteuer und Erbschaftsteuerreform in Deutschland: eine Bestandsaufnahme," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 80(4), pages 161-188.
    10. Shi, Xiaojun & Wang, Hung-Jen & Xing, Chunbing, 2015. "The role of life insurance in an emerging economy: Human capital protection, assets allocation and social interaction," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 19-33.
    11. Brunetti, Michael J., 2006. "The estate tax and the demise of the family business," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1975-1993, November.

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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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