1. Home
  2. Studies
  3. An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor
Martin Beznoska / Tobias Hentze IW-Policy Paper No. 18 14. September 2021 An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor

The inheritance tax is often seen as an effective tool to reduce wealth inequality, to raise public revenues if needed, and to increase incentives to work by lowering the tax burden on labour, which is especially high in Germany, according to the OECD.

Download PDF
An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor
Martin Beznoska / Tobias Hentze IW-Policy Paper No. 18 14. September 2021

An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor

Download PDF Quote

Copy the information

The link was added to your clipboard!

Share this article:

or copy the following link:

The link was added to your clipboard!

German Economic Institute (IW) German Economic Institute (IW)

The inheritance tax is often seen as an effective tool to reduce wealth inequality, to raise public revenues if needed, and to increase incentives to work by lowering the tax burden on labour, which is especially high in Germany, according to the OECD.

However, expectations that higher taxation of wealth, not least in the form of inheritances and gifts, would lead to a decline in wealth inequality are often exaggerated. A higher inheritance tax would not directly reduce inequality.

From an economic point of view, a valid argument in favor of a higher taxation of inheritances and gifts would be the possibility of using additional tax revenues to reduce the burden on labor. A shift of tax revenues from income tax to inheritance tax could be used to increase incentives to work by lowering marginal tax rates for the working population.

As a reform model for the inheritance tax, many economists therefore recommend a broad tax base with relatively low tax rates, i.e. a departure from the current model with partly high tax rates but extensive allowances and exemption rules.

However, the potential additional tax revenues of such a flat-tax model are rather low, as the analysis of inheritance and gift tax statistics shows. The introduction of a flat-tax model with a broad tax base in inheritance tax would generate only little additional tax revenue and would consequently have little potential to generate relevant employment effects. This is particularly true if the personal allowances that ensure, for example, the tax-free transfer of owner-occupied real estate are to continue to apply.

In addition, a reform of inheritance tax must not disregard the effective burden on business assets in order to avoid negative effects on value creation and jobs. Flat-rate exemptions for business assets subject to a few conditions and long-term interest-free deferrals could eliminate bureaucratic burdens and uncertainties about the tax burden.

Download PDF
An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor
Martin Beznoska / Tobias Hentze IW-Policy Paper No. 18 14. September 2021

An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor

Download PDF Quote

Copy the information

The link was added to your clipboard!

German Economic Institute (IW) German Economic Institute (IW)

Share this article:

or copy the following link:

The link was added to your clipboard!

More on the topic

Read the article
Proposals for more liquidity in private households and companies
Tobias Hentze / Michael Hüther IW-Policy Paper No. 5 24. September 2022

Effective aid programs in the energy price crisis

The energy price crisis is a huge challenge for economic policy. With the three relief packages, the government has given some important support, but the economic policy lacks a stringent line. All measures should currently have the top priority to secure ...

IW

Read the article
Melinda Fremerey / Andreas Lichter / Max Löffler in CESifo Working Papers External Publication 20. June 2022

Fiscal and Economic Effects of Local Austerity

We study the consequences of a large-scale austerity program targeting financially-constrained municipalities in Germany. For identification, we exploit the quasi-random assignment of treatment among equally-distressed municipalities using a ...

IW

More about this topic

Content element with id 8880 Content element with id 9713