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Giving to the children or the taxman?

Sebastian Escobar, Henry Ohlsson and Håkan Selin

European Economic Review, 2023, vol. 153, issue C

Abstract: Wealth transfer tax systems based on inheritances and inter vivos gifts, rather than estates, allow donors to shift wealth among potential recipients with the goal of minimizing tax burdens. However, tax minimization often requires the donor to give up control over wealth if the transfers are made as inter vivos. Usually, such behavior is difficult to analyze as many potential heirs and many different tax schedules are involved. In this article, we study a simple setting that allows us to obtain transparent and credible evidence of inheritance tax responses. Swedish heirs could easily lower their inheritance tax bills to zero by giving part of the inheritance to their children. Using detailed administrative data, we show that many heirs tax minimized in a precise fashion. Still, among those inheriting just above the exemption, only about a half avoided the tax. Preferences for holding wealth and information seem to play major roles. Our findings have general policy relevance, because similar (but more complex) tax avoidance strategies can be used to avoid any inheritance tax.

Keywords: Tax avoidance; Tax rate elasticity; Inheritance taxation; Inter vivos gifts (search for similar items in EconPapers)
JEL-codes: H21 H24 H26 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.euroecorev.2023.104382

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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