Inheritance Taxation and the Allocation of Productive Assets in Family Firms

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Abstract
We examine how taxation of intergenerational transfers affects the allocation of productive assets within family firms. Using administrative registry data on family-farm successions in Sweden around the 2005 abolition of inheritance and gift taxes, we investigate how the successor's share of land holdings in the parental and sibling generation responds to the removal of taxes. We use a quasi-experimental event-study design and find that the increase in the successor's ownership share is about 10-11 percentage points larger among families with greater predetermined exposure to the pre-reform inheritance tax. Results also indicate that the reform led parents to transfer assets earlier and concentrate a larger share of productive assets in the successor through inter vivos gifts. Post-reform successions are associated with higher capital intensity, suggesting that inheritance and gift taxation extends beyond the direct tax burden, affecting property-right allocation and capital intensity in family-operated enterprises.