Behavioral Responses to Inheritance Tax: Evidence from Notches in France, with Arturo Infante, Journal of Public Economics, 2018, 168: 21-34.

    Abstract: For the first time, we exploit quasi-experimental variations to investigate the impact of inheritance taxation on wealth accumulation. Using the French preferential tax scheme for inheritance, we take advantage of unique age and time discontinuities to estimate different behavioral responses to taxation. These responses are estimated directly during lifetime, rather than relying solely on observations at death. The analysis is based on a longitudinal data set of preferential tax savings from Axa over the period 2003-2013. We obtain two main results. First, we estimate timing responses using a bunching approach. Second, we use a difference-in-differences approach to estimate real and shifting among asset portfolio responses at the individual level. We document the presence of important, but relatively small, responses to inheritance taxation. Our empirical findings shed a new light upon wealth accumulation and bequest motives. Taken together, our results cannot be supported by the desire to retain control over wealth. We argue that small responses to inheritance tax could be better explained by psychological factors such as myopia or denial of death. Our results call for more sophisticated models incorporating psychological biases into wealth accumulation and bequest decision. 

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