Taxing transitions: Inheritance tax and family firm succession

Philipp Krug and Dominika Langenmayr

Journal of Economic Behavior & Organization, 2025, vol. 238, issue C

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 treatment 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)
JEL-codes: D25 H25 J24 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:238:y:2025:i:c:s0167268125003579

DOI: 10.1016/j.jebo.2025.107238

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