Inheritance Taxation in Sweden, 1885-2004: The Role of Ideology, Family Firms and Tax Avoidance

IFN Working Paper #1032

47 Pages Posted: 7 Jul 2014 Last revised: 5 Apr 2019

See all articles by Magnus Henrekson

Magnus Henrekson

Research Institute of Industrial Economics (IFN)

Daniel Waldenström

Research Institute of Industrial Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 28, 2015

Abstract

This paper studies the evolution of Swedish inheritance taxation since the late nineteenth century to its abolition in 2004. Our contribution is twofold. First, we compute the annual effective inheritance tax rates for different sizes of bequests, if the inherited assets were family firm equity or not, accounting for all relevant exemptions, deductions and valuation discounts. Second, we attempt to explain changes in inheritance taxation over time. Ideology appears to be the main driver of the sharp tax increases of the 1930s through the 1960s. Wartime economies with higher pressures on the people induced politicians to raise inheritance taxes on the wealthy, primarily during the First World War. We also document increased opportunities for tax planning for the wealthy, most notably a series of tax cuts on inherited family firms in the 1970s. This rise in avoidance opportunities for the rich while middle-class heirs face growing inheritance tax rates undermined the legitimacy of the tax and led to its repeal.

Keywords: Gift tax, Inheritance tax, Estate tax, Tax avoidance, Excess burden, Entrepreneurship, Ownership transfers of family firms

JEL Classification: H20, K34, D31

Suggested Citation

Henrekson, Magnus and Waldenstrom, Daniel, Inheritance Taxation in Sweden, 1885-2004: The Role of Ideology, Family Firms and Tax Avoidance (May 28, 2015). IFN Working Paper #1032. Available at SSRN: https://ssrn.com/abstract=2462691 or http://dx.doi.org/10.2139/ssrn.2462691

Magnus Henrekson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
Grevgatan 34
Stockholm, SE-10215
Sweden
+46-8-6654502 (Phone)
+46-8-6654599 (Fax)

HOME PAGE: http://www.ifn.se/mh

Daniel Waldenstrom

Research Institute of Industrial Economics ( email )

P.O. Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/danielw

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