14th journées Louis-André Gérard-Varet

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Behavioral responses to inheritance tax: Evidence from notches in France
Jonathan Goupille, Jose Infante

Last modified: 2015-05-06


This paper investigates behavioral responses to inheritance taxation in an inter-temporal framework. Our empirical strategy exploits original quasi-experimental variation created by the French preferential tax scheme for transmission through life insurance. The analysis is based on first-time access to a unique longitudinal data set of life insurance policies from Axa over the period 2003-2013.

We obtain two main results. First, we estimate simultaneously timing responses in the short and medium-term using an innovative bunching approach. We document large bunching leading to important timing responses in the short term but modest inter-temporal shifting in the medium term. Second, we use a difference-in-differences approach to estimate real and shifting among asset

portfolio responses. We find compelling evidence of a negative effect of inheritance taxation on life insurance accumulation at the individual level. Consistent with our estimated elasticity of taxable bequest, we find that optimal inheritance tax rate might be as large as 55%–70%.

Our results can be rationalized by an inter-temporal model of wealth accumulation with two assets. This model is able to take into account the different behavioral responses to taxation occurring over time and between assets. In this model, individuals face a trade-off between accumulating an asset A for fiscal purposes or enjoying greater utility from an asset B during their lifetime in return for a higher tax burden at death.


Bunching, taxation, inheritance