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Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns

66 Pages Posted: 25 Aug 2004 Last revised: 4 Aug 2010

Jon Bakija

Williams College - Department of Economics

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: July 2004

Abstract

This paper examines how changes in state tax policy affect the number of federal estate tax returns filed in each state, utilizing data on federal estate tax return filings by state and wealth class for 18 years between 1965 and 1998. Controlling for state- and wealth-class specific fixed effects, we find that high state inheritance and estate taxes and sales taxes have statistically significant, but modest, negative impacts on the number of federal estate tax returns filed in a state. High personal income tax and property tax burdens are also found to have negative effects, but these results are somewhat sensitive to alternative specifications. This evidence is consistent with the notion that wealthy elderly people change their real (or reported) state of residence to avoid high state taxes, although it could partly reflect other modes of tax avoidance as well. We discuss the implications for the debate over whether individual states should decouple' their estate taxes from federal law, which would retain the state tax even as the federal credit for such taxes is eliminated. Our results suggest that migration and other observationally equivalent avoidance activities in response to such a tax would cause revenue losses and deadweight losses, but that these would not be large relative to the revenue raised by the tax.

Suggested Citation

Bakija, Jon and Slemrod, Joel B., Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns (July 2004). NBER Working Paper No. w10645. Available at SSRN: https://ssrn.com/abstract=579792

Jon Bakija

Williams College - Department of Economics ( email )

Morey House
Williamstown, MA 01267
United States

Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

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Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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