Behavioral Responses to Taxation of Inherited Property

• In Event: Behavioral Insights on Social Preferences and Consumption

Abstract

This paper investigates behavioral responses to an increase in taxation of inherited property in California. Using data from San Francisco and Los Angeles counties, we find that households accelerated inter-vivos property transfers to their children by 15 months in response to an impending tax increase on inherited property. We disaggregate responses by Census tract income and find that the top income decile in each county is most responsive to the policy change. Our tax elasticity estimates are much larger than what is typically found in the inheritance tax literature, and imply a significant delay in expected government revenue and an exacerbation of inequality in tax liabilities due to the policy change.

Author

• Sarah Baker, sarah.baker@berkeley.edu