Behavioral Responses to Inheritance and Gift Taxation: Evidence from Germany Ulrich Glogowsky∗ University of Munich
[email protected] September 7, 2020 (First version: August 2015) Abstract The desirability of inheritance and gift taxes depends on individuals’ tax responsiveness. This paper demonstrates how strongly, and in what way, the German inheritance and gift tax influences taxpayer behavior. To that end, it combines administrative data with cross-bracket tax variation: a convex kink in the tax liability precedes a concave kink. Extending the bunching approach to such double-kinked tax schedules, I document that individuals tailor their taxable wealth transfers to the schedules. One type of response dominates for inheritances: testators engage in testament planning. The magnitude of the testament-planning response is comparable to that of inter vivos gifts. However, neither the overall responses of gifts nor those of inheritances heavily interfere with tax revenue collection: the associated short-run net-of-tax elasticities of taxable wealth transfers lie below 0.1. JEL codes: H2, H20, H21, H24, H26, H31 Keywords: Wealth-Transfer Tax, Inheritance Tax, Gift Tax, Estate Tax, Real Responses, Tax Avoidance, Tax Evasion, Behavioral Responses, Bunching at Kinks ∗Acknowledgments: I am very grateful to the Co-Editor, Alexander Gelber, and three refer- ees for exremely helpful comments and suggestions. Moreover, I have benefited from comments by and discussions with Alan Auerbach, David Agrawal, Felix Bierbrauer, Spencer Bastani, Thiess Buettner, Richard Burkhauser, Mikael Elinder, Sebastian Findeisen, Scott Findley, Rachel Griffith, Emanuel Hansen, Andreas Haufler, Bas Jacobs, Henrik Kleven, Tuomas Kosonen, Dominika Langen- mayr, Tuomas Matikka, Joerg Paetzold, Andreas Peichl, Rick van der Ploeg, Simeon Schaechtele, Dominik Sachs, Emmanuel Saez, Sebastian Siegloch, Johannes Rincke, Matthias Wrede, Floris Zout- man, and numerous seminar participants.