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Should Continued Family FirmsFace Lower Taxes Than Other Estates?

Taxes on inheritances may induce heirs to discontinue family firms. Becausefirm dissolution incurs transaction costs, a preferential tax treatment of transferredfamily businesses seems to be desirable from a macroeconomic viewpoint.The support of dynastic succession, however, entails also a cost on the economy iffirm continuation by less able heirs prevents entry into entrepreneurship. Here, weinvestigate analytically and quantitatively the trade-off between transaction costssaved and creative destruction prevented. We find that a unique general equilibriumexists at which, depending on the institutional setup, low-ability heirs eitherabandon (Type 1) or continue (Type 2) a family business.[...]
Year of publication:
2008-02-01
Authors: Grossmann, Volker ; Strulik, Holger
Institutions: Universität <Hannover> / Wirtschaftswissenschaftliche Fakultät
Subject: Transaktionskosten | Entrepreneurship | Familienbetrieb
Full text |
  • 1. Introduction
  • 2. The Model
  • 3. Career Choices
  • 4. Equilibrium Analysis
  • 5. Calibration
  • 6. The Quantitative Impact of Inheritance Tax Reforms
  • 7. Growth Effects
  • Appendix
  • References
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