INTAXMOD – Inheritance and Gift Taxation in the Context of Ageing

Abstract Based on the most recent data from the ECB's Household Finance and Consumption Survey, the project models the future household-level wealth distribution in five selected EU member countries (Finland, France, Germany, Ireland, and Italy) to derive inher- itances based on different demographic and wealth projection scenarios. On this basis, various inheritance tax scenarios are simulated to estimate potential inheritance tax revenues for a projection period of 30 years. Our results indicate that multiple factors coincide in favouring a growing revenue potential for inheritance taxation in the me- dium-term. Wealth accumulation and appreciation lead to higher average wealth lev- els. The shift of the baby boomer generation out of the labour force results in an in- crease of the older population both in absolute and relative terms. Eventually, this will lead to a rise in the number of deaths and the number of inheritances. Additionally, low fertility rates lead to a reduction of the average number of successors and thereby de- crease the importance of exemption thresholds, as individual inheritances become larger. Overall, our simulations show that the future revenue potential of inheritance taxes may be substantial. In practice, it can be expected that the theoretical revenue potential demonstrated by our simulations will be reduced by tax avoidance, real re- sponses, and general equilibrium effects on other taxes. A review of the empirical evi- dence shows that behavioural responses to inheritance taxes are less pronounced compared to a net wealth tax.