Determinants of inheritance and gifts taxation in the European Union

Abstract

Inheritance and gift taxation vary widely among countries in both the design and tax burden. We analyze the impact of a series of factors, such as the country’s affluence, political preferences, preferences for equity, aging ratio, fiscal standing of the state, and the country’s size, on inheritance tax systems. The applied methods involve the random effects ordered logistic regression for tax design and tobit correlated-random effect models for tax revenues. We find that inheritance tax design is mainly determined by demographic factors while tax revenues depend on a broader group of factors including political orientation of a state, condition of an economy, and the size of a country. Higher preferences for equal distribution and commitment to democratic norms are associated with higher tax revenues. Good economic condition of the state boosts revenues, as does country’s higher population. The results shed some light on future evolution of inheritance taxation.