The Vanishing Bequest Tax: The Comparative Evolution of Bequest Taxation in Historical Perspective

Bequest tax revenues have been declining in OECD countries for at least seventy years. We proposean explanation which is based on a dynamic politico-economic model where the evolution of bequesttaxation is determined by wealth inequality. Since economic development induces a growing role oflabor income and thus a reduction of wealth inequality, bequest taxation is reduced over time. Themodel also embeds a process of structural reallocation from agriculture to manufacturing and aconsequent shift of the tax base from easy-to-tax land to hard-to-tax capital. This process impliesa lower tax level and slower equalization-induced tax reduction, the higher is the tax avoidancerate and the less developed is the economy. The introduction of franchise restrictions which aregradually lifted over time allows to reproduce the humped-shaped long term evolution of bequesttaxation starting from the nineteenth century for those countries that are now modern industrialdemocracies. The evolution of political institutions also helps to explain the discrepancies currentlyobserved between tax systems in developed and underdeveloped countries.