Family Business Inheritance Tax, Innovative Firms, and Restrictions on Changing Industry: Evidence from Korea

Jung Joo La and Jeung Seon Lee

Emerging Markets Finance and Trade, 2025, vol. 61, issue 7, 2059-2074

Abstract: Taking a macroeconomic perspective, this study analyzes how a reduction in family business inheritance tax affects innovative firms. In addition, it examines the effects of reducing family business inheritance tax while restricting changes to the industry of inherited firms. This study is the first to analyze the relationship between family business inheritance tax and innovation using a dynamic general equilibrium model. The calibrated key results, obtained using data from Korea, show that a reduction in the family business inheritance tax rate in the absence of regulations restricting industry changes increases the number of innovative entrepreneurs. Conversely, a reduction in the family business inheritance tax rate with regulations restricting industry changes decreases the number of innovative entrepreneurs. The main policy implication of this study is that a reduction in the family business inheritance tax is costly in the presence of regulations that restrict changes to the industry of an inherited firm; therefore, the best option is to remove such regulations.

Date: 2025
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DOI: 10.1080/1540496X.2024.2443645

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