The Effect of Estate, Inheritance, and Gift Taxes on the Survival of Small Businesses: A Panel Data Analaysis

摘要: Proponents of estate, inheritance, and gift (EIG) taxes claim that the taxes prevent wealth from becoming concentrated in the hands of “generational dynasties” and so help to promote economic equality. This paper presents evidence that EIG taxes can have the reverse effect–encouraging the concentration of wealth–via a greater propensity for small (versus large) businesses to be liquidated for the purpose of paying the EIG tax. This study examines business census data for 50 states over the period 1988 through 2006. Applying generalized method of moments estimation in a panel data framework, the study finds a significant negative relationship between EIG taxes and the number of small firms. The relationship steadily declines as firm size increases such that the relationship becomes positive for the largest firms.