Taxing Transitions: Inheritance Tax and Family Firm Succession

Philipp Krug and Dominika Langenmayr

No 233, Working Papers from Bavarian Graduate Program in Economics (BGPE)

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.

Keywords: Inheritance taxation; family firms; preferential tax treatment; estate taxation (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-04
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-ent, nep-fdg, nep-pbe, nep-pub and nep-sbm
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