The speaker of the Skatteforsk seminar on 14 April was Luigi Dante Gaviano, PhD student in Economics in Cambridge University.
Title of the presentation: Succeeding in Business: Firm Investment and the Abolition of Inheritance Tax
Abstract of the presentation:
While inheritance taxes target individuals, anticipated tax liabilities can spill over into firm investments when individuals hold concentrated, illiquid equity in unlisted firms. We study firm effects of inheritance taxation by exploiting Norway's 2014 abolition of the inheritance tax, using whether a firm's majority owner has children as a shifter of inheritance tax exposure in a difference-in-differences design. Linking the universe of Norwegian private firms to their owners, owner demographics and tax returns, we find that firms of owners with children exhibit persistent increases in tangible and intangible fixed assets and a level shift in R&D employment share following the abolition. These results are consistent with two reinforcing channels: firstly, the removal of a precautionary liquidity distortion that had led forward-looking owners to tilt firm portfolios toward liquid assets in anticipation of succession liabilities, crowding out productive investment; and secondly, a higher after-tax return to dynastic capital accumulation, since the tax acted as a wedge on the return to building firm value for the next generation. Heterogeneity analysis reveals that effects concentrate among wealthy owners whose portfolios are illiquid and concentrated in equity. Our findings suggest that the tax not only depressed, but also misallocated investment, as capital flowed disproportionately toward high-return, large firms after the tax abolition.