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Taxing Transitions: Inheritance Tax and Family Firm Succession

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  • Philipp Krug
  • Dominika Langenmayr

Abstract

In many OECD countries, family firms face lower or no succession taxes if they fulfill continuation requirements. We study the effects of such preferential treat- ment in a two-generation model. Preferential treatment of continued firms leads to more entrepreneurship and higher wages, as entrepreneurs invest more as they value passing on a larger firm. However, more low-ability heirs continue the firm, leading to efficiency losses. In the presence of financial frictions, richer (but less able) heirs may invest more than buyers from outside.

Suggested Citation

  • Philipp Krug & Dominika Langenmayr, 2024. "Taxing Transitions: Inheritance Tax and Family Firm Succession," Working Papers 233, Bavarian Graduate Program in Economics (BGPE).
    • Handle: RePEc:bav:wpaper:233_krug_langenmayr
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    References listed on IDEAS

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    Keywords

    Inheritance taxation; family firms; preferential tax treatment; estate taxation;
    All these keywords.

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