DISTRIBUTION OF WEALTH AND

INHERITANCE TAX

Carmen González de Aguilar

Francisco Cabrillo

IUDEM
Documento de Trabajo 2001-1
Año 2001
ABSTRACT

To achieve a more equal distribution of wealth is, probably, the most

important argument in favour of the Inheritance Tax. This objective was
formulated, in a very precise manner, by John Stuart Mill and was repeated,
one way or the other, throughout the years.

This paper emphasises the inconsistency existing between two basic

objectives of this tax –on the one hand, limitation of the inheritance for an
heir who already has an excessively large estate, and on the other promotion
of the transfer of property within a family. If the latter is the main objective,
then clearly relinquish to a large extent. If the main aim is redistribution of
wealth, then the closest family members or family firms should not be fa-
voured.

JEL: H2, D1.

The full text of this paper may be downloaded (in PDF format) from
the IUDEM´s World-Wide Web site at http://www. ucm.es/info/iudem.
 RESUMEN

La necesidad de reducir la desigualdad en la distribución existente de

la riqueza ha sido, probablemente, el argumento más importante en defensa
del Impuesto de Sucesiones. Este objetivo fue formulado, de forma muy
precisa, por John Stuart Mill y ha sido repetido, de diversas formas, a lo
largo de los años.

Este trabajo pone de relieve la inconsistencia que existe entre dos obje-
tivos básicos del impuesto-por una parte, existen limitaciones en la herencia
cuando el heredero dispone de un patrimonio excesivamente elevado y, por
otra, hay un incentivo a que la propiedad permanezca en la familia. Si el
último es el objetivo principal, debería claramente olvidarse el primero. Si
el objetivo principal es la redistribución de riqueza, no debería favorecerse a
los parientes más cercanos o a las empresas familiares.

JEL: H2, D1

El texto completo de este trabajo puede descargarse (en formato PDF)

de la página web del IUDEM: http://www. ucm.es/info/iudem.
1. THE STATE AND INHERITANCE

Family links have economic implications even after the death of a

member of the family because estates are normally transferred from one
generation to another when a person dies. Inheritance is therefore of great
economic importance not just because it allows for the transfer of the estate
but also because it may determine the behaviour of the testator and heirs
before the death of the former.

Why do people accumulate a greater amount of assets than they can

use while alive and leave them as inheritance to other people, usually their
closest relations? There is a wide range of answers to this question. Some
people find such accumulation satisfying in itself; others because it protects
them against future risks. Let us take the case of a person who finds no
satisfaction in setting aside capital nor has any interest whatsoever in trans-
ferring his fortune to others. Under ideal conditions in which this person
knows with absolute certainty what his flow of income and date of death
will be as well as the exact amount of any extra costs arising - illness, hospi-
talisation, etc. -, he will gain maximum satisfaction from distributing his
expenditure during his lifetime in the most convenient way and will leave
zero assets, or less, at the time of his death. But, if he lives under conditions
of uncertainty with no information on many of these aspects, he will prefer
to have set aside some capital to which he can resort if necessary and
probably, at the time of his death, his net assets will be positive.

There is a third reason for setting aside capital: the desire to transfer it
to one’s descendants after death. Alfred Marshall, for example, considered
that the greatest motivation for a person to work and save was precisely this
desire to leave assets to his children and that, if this possibility did not exist,
people would buy a lifelong income with their capital and would work and
save less1. This argument means that the members of one generation act in
an altruistic way with respect to the members of the following generation
because in their own utility functions they are using the utility function of
their descendants as their argument. In this case, the process of maximising
the utility function will not be limited by the life of the testator but the latter
will obtain maximum satisfaction from using his assets both for his own
consumption and for leaving an inheritance for his descendants.

The transmission of property at death may also follow other motiva-

tions. It is possible that a non-altruistic person for whom the heirs’ utility
––––––––––––––
1
A. MARSHALL (1925), p.228.
functions mean nothing at all will still transfer his estate to his heirs for his
own personal interest. His reason may be to pay for the services rendered to
him by them during the last years of his life. The testator may consider it
useful to not reduce his capital or lose control of it during his life but to
leave it at death to those who cared for him. It may also be acceptable for
the heirs to receive no payment at all for the care given - or to accept a
lower payment than would be demanded if they were not heirs - and to
receive the testator’s estate on his death. The agreement may therefore be
beneficial for both parties, even where there is no altruism.

There are, however, not only private agreements in inheritance. The

State plays an important role in the transfer of property within a family.
This does not only involve setting limits to free disposal by the testator or
regulating the conditions set by the testator on the usage to be made by the
heirs of the property inherited. The State also plays a very important role as
tax collector by appropriating part of the property transferred, the amount
not being a fixed proportion of the sum donated or bequeathed but varying
depending on the sums involved and the personal circumstances of each of
the beneficiaries.

2. WHY DOES THE TAX EXIST? I. REVENUE

There is little doubt that inheritance tax arose as a source of income.

There is plenty of historical evidence to confirm this.2 In fact, throughout
history, the inheritance tax rate has tended to be increased at times of spe-
––––––––––––––
2
This type of tax apparently already existed in ancient Egypt in a highly developed form.
It was then copied but in a simplified version by the Greeks and Romans. The Roman Vicesima
haereditarium was a tax on inhertance, legacies and donations, except for when these went to
very close relatives. It was established by Augustus at a time of financial difficulty, as a tax
which was not likely to cause widespread protest. During the Middle Ages there was also a tax
on mortis causa transfers. In feudal institutions, it was compulsory for vassals to hand over a
sum of money or certain goods to the lord when they passed on the use of the land to their
heirs. As from the 17th century, when royal power was established, first in Holland and then in
England, France, Spain and Portugal, a tax was placed on inheritance in the form of a stamp
duty. In some countries, the monarchs inherited the former rights of the feudal lords or the
monarchs themselves created an inheritance tax. In England, at the end of the 18th century and
because of the financial problems caused by the Napoleonic Wars, taxes were levied on income
and inheritance and were considered the Public Treasury’s two most modern levies. Subse-
quent reforms in 1894 drew up the general lines for today’s inheritance tax. Subsequent modi-
fications tried to introduce progressive taxation or to raise tax rates, especially during times of
special need for public funding, such as the First World War. L. BELTRAN (1945), p.p. 79-
128. J.J. CLAMAGERAN (1867-1876). Vol.I, p.p. 207-208 . A. SMITH (1776), book V, ch.
II, sec.2, apendix to arts. 1,2.

2
cial need.3 Today, however, things have changed and the returns from in-
heritance tax are very small, both in absolute terms and in terms of the per-
centage of total tax revenue.

Table 1 shows trends in this tax in a sample of five countries

(United Kingdom, United States, France, Germany and Italy) and how
it has become gradually less relevant for modern States.

TABLE Nº 1.Revenue from inheritance tax in a sample of

five countries (% of total tax revenue)

UNITED (1913-14) (1933-34) (1943-44) (1965) (1985)

KINGDOM 16.8 12 3.4 2.62 0.64

UNITED (1917-18) (1931-32) (1940-41)

STATES 1.2 5.4 5.2 0.79

FRANCE (1913) (1938) (1941)

7 3.8 4.3 0.56 0.61

GERMANY (1929-30) (1939-45)

0.9 0.5 0.22 0.22

ITALY (1916-17) (1929-30) (1939-40)

1.4 0.3 0.7 0.85 0.24

Source: Drawn up by the authors based on L. BELTRÁN El Impuesto

sobre las herencias. Ed. Bosch. Barcelona, 1945, pp. 85 - 128 and J.A.
ESTEBAN PAUL “El Impuesto sobre Sucesiones y Donaciones en Derecho
Comparado” in Carta Tributaria. 1990

The current situation for the OECD countries is given in Table 2. This
shows that, except for Japan and Greece, none of the member States of the
OECD receives even one per cent of its tax revenue from this tax.
––––––––––––––
3
In addition to the English example mentioned above, in the United States a federal tax
was created in 1864 on inheritances as an exceptional measure to finance the Civil War. This
was done again in 1898 for the war against Spain and in 1916 when the US entered the Euro-
pean War. France, Germany and Italy also raised inheritance taxation sharply during the post-
war years.

3
 TABLE Nº 2. Percentage of revenue from inheritance and gift taxes
over total tax revenue in OECD countries (1992)

Australia 0.00
Austria 0.18
Belgium 0.74
Canada 0.00
Denmark 0.56
Finland 0.46
France 0.93
Germany 0.25
Greece 1.04
Iceland 0.22
Ireland 0.30
Italy 0.14
Japan 2.01
Luxembourg 0.32
Netherlands 0.53
New Zealand 0.29
Norway 0.19
Portugal 0.25
Spain 0.42
Sweden 0.17
Switzerland 0.85
Turkey 0.11
UK 0.58
US 0.91

Non-weighted average
EEC 0.50
OECD (Europe) 0.42
OECD (Total) 0.48

Two countries – Australia and Canada – have no Inheritance and Gift

Tax. In both cases, it was abolished fairly recently. In Switzerland, where
there is no State inheritance tax, the figures are for revenue from the taxes
in the various cantons. In Spain, the tax has been transferred to the regional
governments but the revenue is similar because, although the Autonomous

4
Communities are acknowledged as having legislative authority, there are
certain limits and the structure of the rate set up by each region must be
scaled in a similar way to the State tax and must be the same as the latter in
the amount of the first tranche of the tax base and the minimum marginal
rate.

Obviously, the fact that a tax does not bring in a large revenue is no
reason why it should not be established. What is more relevant is its differ-
ential tax incidence measured as the costs for the society of collection by
the State of a certain amount of resources through inheritance tax in
comparison with the costs of collecting the same amount of money through
other taxes, such as income or sales tax. The theoretical analysis of the
income and substitution effects of this tax is well known and does not need
to be repeated here. It is also a fact that there is no consensus amongst the
specialists over how to quantify the effects of these taxes on the rate of
saving. However, there are important empirical studies which establish a
close link between the accumulation of capital and the possibility of this
capital being inherited by descendants. Basically, it is not necessary to ac-
cept the well-known figures drawn up Kotlikoff and Summers4 - whereby as
much as two-thirds of capital accumulation is due to inheritances – to real-
ise that this tax may have a high cost in terms of efficiency. Moreover, there
is no agreement on the idea that revenue from this tax has a low social cost,
because the tax is levied on resources which have been received at no cost
at all, not earned as a result of personal effort. And since the cost of collec-
tion in comparison with the actual fiscal revenue is rather high, clearly other
reasons must be found to explain why this tax still exists in most countries.

3. WHY DOES THE TAX EXIST? II. THE OBJECTIVE OF

WEALTH REDISTRIBUTION AND FAMILY STRUCTURE

The most important argument to justify inheritance taxes is based on

the fact that they constitute an important tool for redistributing income be-
cause they help to create equality. To take the old argument used by J.S.
Mill, people are entitled to transfer their property when they die because, if
this were not possible, the right to ownership would not exist in the full
sense of the word, but this does not mean that society cannot limit the
amount received by each heir5 in order to eliminate the large fortunes that
are useless for society and, in Mill’s opinion, can only be spent on ostenta-
––––––––––––––
4
L. Kotlikoff and L. Summers (1981), pp. 706-732.
5
J.S. Mill (1848). London: Longmans.

5
tion and on buying up power. Reduction of inequality of wealth is usually
presented as an important objective because the data show that wealth is
distributed in all countries in a less equal way than income.6 And it is
thought that this distribution might distort competition based on the talent
and hard work of the individual.

Clearly, one of the reasons why wealth continues to be unequally dis-

tributed is family organisation. People tend to marry within their social
group or class. If this were not so, it could be argued that in the long term
there would be an increasing reduction in the inequality of wealth distribu-
tion and a convergence of estates towards average values.7

In traditional societies, marriages used to be arranged by the parents

who generally chose the prospective partner from amongst their close circle
or social environment. But when couples are free to choose their partner,
they still tend to choose someone having a similar background. Since the
family is a consumer unit, the best results can be expected when the hus-
band and wife have the same tastes and preferences. According to this crite-
rion, marriages in which the two partners are from the same class, religion
or social group are more likely to succeed as they are likely to have similar
tastes, interests and types of behaviour.

However, there are also arguments against this idea that marriage is a
determining factor in the concentration of wealth. Firstly, the family is not
only a consumer unit but also a production unit. This means that the choice
of partner will take into account the comparative advantage of each member
of the couple and the complementarity of their respective types of human
capital. The choice of partner may therefore be based more on differences
than similarities. According to the principle of hypergamy, a husband with a
high level of human capital or wealth is likely to look for a wife who will
basically be responsible for care of the home and who, therefore, will be of
a lower social rank than his own.

If we accept the possibility that the benefits of marriage are not shared
out on an equal basis but that, provided the position of each of the spouses
will be better than before marriage, it might be that each spouse will at-
tempt to maximise not the total utility of the couple but personal individual
––––––––––––––
6
Note that calculations of the distribution of wealth are often seriously flawed by meth-
odological errors because they do not usually consider as wealth the updated value of the flows
of returns from retirement pensions, especially in the case of public pension schemes.
7
G.S. BECKER (1993). Chapter 4.

6
utility by marrying a person who has less desirable characteristics. This
would allow him or her to maintain a dominant position in the marriage,
with his or her individual utility being higher than that which would result
from higher combined utility shared out in a more equal way. From our
point of view, the effect of such a strategy would be a reduction in the ac-
cumulation of family wealth over a number of generations.

Other factors also affect the accumulation of wealth. Some of these are
related to inheritance but they are distributed in a more random way than
the estate amongst the members of a specific generation. These are factors
such as intelligence or diligence which are not inherited from parents in the
same proportion as wealth so may increase or decrease inequality in the
distribution of wealth. Fertility is another important factor which may sub-
stantially reduce the accumulation of wealth because the more children a
couple has, the smaller the concentration of wealth in the following genera-
tion will be. The influence of this variable, however, is affected by the in-
heritance law which is in force in the country and at the time.

In spite of these factors, clearly family inheritance is one of the

most important variables for explaining a person’s wealth in his or her
lifetime. This being so, if one of the main objectives of inheritance tax is
to reduce differences in the distribution of wealth, then the following
question must be posed. Why do tax regulations discriminate in favour
of heirs who are close family members – especially the children – of the
deceased person?

4. PROBLEMS AND INCONSISTENCY OF THE FUNCTION OF

REDISTRIBUTION

An interesting feature of inheritance tax is that it aims to reduce inequality

in the distribution of wealth but is based on regulations which go against
achievement of this objective. Two aspects of the tax which affect the objective
of equality are studied below – most importantly, the discriminatory treatment
of heirs and, secondly, discrimination in favour of family firms.

4.1. Heirs apparent and other heirs

The structure of tax rates, which gives beneficial treatment to the closest
family members, creates incentives for the inheritance to remain within the

7
family. This principle has always been present in inheritance taxation which
often exempts the direct heirs and the spouse from any payment at all.

The privileged treatment which fiscal law gives the closest family
members is really only another aspect of the favourable attitude shown
towards the family in almost all inheritance legislation which is undoubt-
edly based on consideration of the family as something more than just a
group of related persons that establish agreements involving the provision
of services in line with the general principle of freedom of contract. It can
even be affirmed that some of the characteristic institutions of family law in
some countries are based on the existence of a certain type of community of
assets within the family which not only affects the two or three generations
that usually live together but reaches into the past and towards the future to
include previous and subsequent generations. According to this traditional
vision of the family, the person who at a specific time owns property - most
of which has probably been received in the form of inheritance - does not
own it in the full sense of the term but rather just holds and administers the
family property and must eventually pass it on to the following generation.
The case of entailed estates governed by the right of primogeniture in which
the majority of the family property - especially real estate - is inherited by
the eldest child to prevent it from being split up is probably the most sig-
nificant example. But it is not the only case. More important is at the pre-
sent time the legitimate share system –namely the obligation to set aside
part of the state for the heirs by necessity of the deceased person with the
testator being entitled to freely dispose of another part of it- that is the rule
in the civil law of the majority of the European countries

The great social changes that have taken place in western society in re-
cent decades have resulted in the disappearance of many of the characteris-
tic institutions of the traditional family. But law in some countries still gov-
erns inheritance as if the family community were more important than it
really is. The legitimate share can be understood as an attempt to equalise
the position of the children who had previously been treated in a discrimina-
tory fashion by favouring the first-born. But the idea behind such systems is
still the existence of a family community within which the property must
necessarily be transmitted. However, traditional families also imposed du-
ties and patterns of behaviour. One of these and perhaps the most important
was the acceptance by the family members of a hierarchical structure
headed by the old patriarch who administered the property. Today this hier-
archical structure has disappeared because it is incompatible with a modern
economy and modern society. And in most cases the different generations

8
do not even live under the same roof. The elderly have lost their authority
within the family but, surprisingly, they have not lost their obligation to
leave most of the property to their children over whom they no longer have
any authority.

Fiscal laws have reinforced this favourable treatment for close family
members. The data given below refer to Spain but are fairly indicative of
the general situation. In Spain, most inheritances have remained within the
family as a result of testators’ wills, the law and the structure of tax rates.
Table 3 shows 5-yearly averages for the destination of inheritances amongst
heirs apparent (mostly children) or other heirs for both the tax base and the
revenue got by the State.

TABLE Nº 3. Inheritance taxes in Spain by groups of heirs (1900-1964)

5-YEAR TAXABLE BASE (%) REVENUE(%)

PERIODS
(Annual Heirs Other Heirs Other
averages) apparent heirs apparent heirs
1900-1905 78.26 21.74 47.96 52.04
1906-1910 78.12 21.88 44.59 55.41
1911-1915 84.30 15.70 57.05 42.95
1916-1920 80.30 19.70 46.52 53.48
1921-1925 80.83 19.17 49.93 50.07
1926-1930 80.36 19.64 49.50 50.50
1931-1935 76.15 23.85 40.06 59.94
1940-1944 73.30 26.70 35.93 64.07
1945-1948 83.74 16.26 48.26 51.74
1949-1953 85.04 14.96 51.25 48.75
1954-1957 85.84 14.16 53.22 46.78
1958-1962 85.70 14.30 53.39 46.61
1963-1964 84.67 15.33 51.55 48.45

Source: Drawn up by the authors based on data from the Spanish Insti-
tute for Fiscal Research.

9
 This historical series shows that the largest volume of estates transmit-
ted that was subject to this tax was amongst heirs by necessity in a ratio of 4
to 1 to those transmitted to other heirs. However, because of the different
rates based on the degree of relationship with the deceased person, the
amounts collected are almost equal for the two types of heir. The amount
transmitted to heirs by necessity is between 78 and 81 per cent of the total
inheritance before 1945; and since 1945 there has been an even greater
accumulation in favour of the closest family relations.

The usual method for benefiting the closest family members is to

establish different taxation rates for different degrees of relationship but this
is not the only possible strategy. Other ways of giving precedence to close
family is to allow for certain sums to be exempt from taxation when the
beneficiaries are direct family members, or to create a second tax on the
amounts received by each of the heirs who are distant relatives or are not
family members. The effects are obviously the same.

It is normal for the testator to obtain greater utility if the estate is left to
the closest family members and anyway civil and fiscal regulations give
greater incentives for this type of behaviour. The person would have to
make an additional effort to save if he or she planned to pass the inheritance
outside the close family circle and this would result in a reduction of the
amounts transmitted to people outside the family. These incentives have a
double effect on efficiency and distribution. With regard to efficiency, privi-
leges for the closest family members have a negative effect in that they limit
property rights by restricting the capacity of a specific person to negotiate
with third parties to receive care in exchange for a future inheritance. But
they may also have a positive effect by restricting inefficient rent-seeking
behaviour by possible heirs.8 The effects on distribution are clear in that
such regulations tend to concentrate wealth among the deceased’s direct
descendants.

In some countries and at certain times of history, clauses were drawn

up to penalise heirs having, in a ceteris paribus situation, a large estate.
Some European countries (such as Germany and Italy) introduced this type
of regulation after the First World War.9 But in other cases it has become
just another element of the tax. This is the case in Spain where heirs have to
––––––––––––––
8
For an analysis of these possible strategies, see F. CABRILLO (1999), pp.124-126.
9
It was stabilised in both countries in 1919 and, as the tax with the surcharge could take
the whole state, Germany limited the total amount of the inheritance tax to 90% of the value of
the state. L. BELTRÁN (1945), p.p. 117,124.

10
pay a 5 per cent supplement if their estate before the inheritance was in
excess of 385,000 Euros; 10 per cent if it was in excess of 1,900,000 Euros,
and 20 per cent if it was in excess of 3,873,000 Euros. This is commonly
known as “the prodigal son clause”. It has been much criticised because it
discriminates amongst heirs and penalises saving. It means that if there are
two direct heirs who have started out in life with equal opportunities, the
heir who has saved is penalised in favour of the heir who has consumed his
rent. This is clearly inefficient but, if the main aim is to achieve greater
distribution of wealth, we have to accept that it is reasonable to penalise the
heirs having a larger initial estate.

4.2.Transmission of the family firm

The favourable fiscal treatment given to family firms in the inheritance

tax of some countries gives rise to discrimination amongst heirs who re-
ceive the inheritance through a family firm and those who receive an estate
of a different type. This privilege is usually justified, as shown below, as a
method for helping to maintain the family business when the
owner/manager dies. However, considering that many family firms are
medium-sized or even large, this fiscal regulation may clearly go against the
objective of reducing inequality in the distribution of wealth.

Let us take the example of Spain once again, this being a country in
which family firms receive very favourable treatment, although this is a
result that certain pro-family firm lobbies might reject. In the case of a firm
being passed on through inheritance, for the purpose of inheritance tax the
value of the firm is reduced by 95 per cent, provided that the heirs are
spouses, descendants or adopted descendants and provided that the heirs
undertake to maintain the firm or their shares for ten years. These advan-
tages go together with especially favourable treatment in wealth tax
whereby the goods and rights of the persons who are necessary for carrying
out the social or professional activity are exempted from taxation, provided
that the activity is carried out habitually, personally and directly by the
person in question and is his or her main source of income. This is an im-
portant exemption considering that, although wealth tax has fairly low rates,
it is a progressive tax.

Tax laws to protect family businesses may, as in the cases considered

in the previous section, take many forms – from across-the-board privileges,
to the restriction of privileges to very small firms, excluding medium-sized

11
and large firms and eliminating many of the problems of discrimination in
favour of large estates. There are also special regulations that are applied
only to companies having specific characteristics or being in specific sectors
such as farms when inheritance law is sometimes adapted to allow one of
the heirs to receive the whole of the business even if this goes against the
system of the legitimate share. Or more simply, payment of inheritance tax
may be deferred so that payment can be made out of returns from the busi-
ness over time rather than from the sale of the firm’s assets.

The idea behind these tax benefits is, as stated above, to help family
businesses to survive. It has been shown in estimates carried out in a num-
ber of countries that the death of the entrepreneur places the business at risk.
In France, for example, it is calculated that 10 per cent of business shut-
downs are the result of inheritance problems and, over the next decade, the
death of 60,000 family entrepreneurs will lead to the loss of one million
jobs. In Spain it has been estimated that only one third of family firms sur-
vives into the second generation, and the figure is 15 per cent in the third
generation.10

But is privileged treatment in inheritance tax the best way of prevent-

ing the disappearance of family firms? Inheritance after death of the head of
the family business is certainly one of the variables that may be involved in
the firm’s disappearance. But the main problem for this type of firm is a
matter of organisation. It is often difficult to identify the role that the family
can play in business activity. There are three normal types of behaviour
which affect economic efficiency and may lead to the disappearance of a
firm. These are confusion between ownership and management capacity,
confusion of the entrepreneur’s economic, social and private flows and
confusion of emotional links with contractual links. While management
capacity is based on certain innate qualities or may be developed through
training or practice, ownership of shares in the family firm is bought or
inherited and does not necessarily come together with such capacity. In
addition, family firms often do not follow market rules for the payment of
management or productive work and dividends, reinvestment or extension
policies are often not based on principles of economic efficiency. Finally,
emotional factors may play an important role in family firms, so much so
that the contractual relationships which are fundamental if a firm is to be
competitive are neglected. In comparison with these factors, a change in
inheritance tax is only of relative importance. The incentives provided by
fiscal measures are not therefore the only variable affecting continuity of
––––––––––––––
10
See M.A. GALLO (1995), p.51. G.GARCIA CANTERO (1995) p. 99 . VIDAL (1993).

12
the firm and anyway involve discriminatory treatment of the heirs, possibly
favouring people who already have a large estate.

5. CONCLUSIONS

There are many arguments in favour of the disappearance of inheri-

tance tax. Some are based on a person’s right to dispose of his or her prop-
erty and others are based on economic considerations in that this tax has
negative effects on the rate of saving while bringing in only limited reve-
nue. In this paper we have focused, however, on a critical discussion of the
argument which is most widely used to defend this tax, namely, its capacity
to achieve greater equality in distribution of wealth and to put a limit to
excessive economic power which might have undesirable consequences on
society as a whole.

Several factors are taken into account in this argument. Firstly, the idea
that it is good for a fiscal system to achieve more equal distribution of
wealth is a value judgement which is accepted by many but rejected by
many others. Even if we accept this as a desirable objective, it is not clear
that inheritance tax is the best possible method of achieving it. Although
there are no reliable figures, there is a widespread feeling that the degree of
tax evasion in this connection is directly related to the size of the inheri-
tance in question. There are two reasons for this. Firstly, incentives for tax
evasion increase the greater the estate to be inherited and, secondly, the
possibility of concealing assets from the tax office are greater for larger
estates. For most people, the home is the main asset and real estate is the
part of the assets which is easiest for the State to tax. But if the estate is
made up of financial assets in an international scenario of free movement of
capital, fiscal pressure is more limited.11

This paper emphasises the inconsistency existing between two basic

objectives of this tax – on the one hand, limitation of the inheritance for an
heir who already has an excessively large estate and, on the other, promo-
tion of the transfer of property within a family. If the latter is the main ob-
jective, then clearly the former must be relinquished to a large extent. If the
––––––––––––––
11
In some countries and during certain historical periods, fiscal treatment showed
discrimination in favour of real estate property. This, however, was done to reduce taxation not
on small inheritances but on large land-owners. This is the case, for example, of the first inheri-
tance taxes applied in England which used the argument that the real owner of real estate
property was not a single person but the whole family, especially in cases in which properties
were entailed. W.L. MILLER (1980). L. BELTRAN (1945), p.86.

13
main aim is redistribution of wealth, then the closest family members or
family firms should not be favoured.

REFERENCES

BECKER, G.S. (1993).A Treatise on the Family. Cambridge: Harvard Uni-

versity Press.

BELTRAN, L.(1945).El Impuesto sobre las herncias. Barcelona: Bosch

CABRILLO, F.(1999).The Economics of the Family and the Family Policy.

Cheltenham: Edward Elgar.

CLAMAGERAN, J.J. (1867-1876).Histoire de l´Impôt en France. Paris

GALLO, M. A.(1995). “La empresa familiar: fortaleza y trampas” in La

empresa familiar ante el Derecho. El empresario individual y la Socie-
dad de carácter familiar. Madrid: Civitas.

KOTLIKOFF, L. and SUMMERS, L. (1981) “The Role of Intergenerational

Transfers in Aggregate capital Accumulation”. Journal of Political
Economy, 89.

MARSHALL, A. (1925) Principles of Economics. London: MacMillan

MILL, J.S. (1845) Principles of Political Economy with some applications

to social philosophy. London: Longmans. (ed. W.Ashley).

MILLER, W.L. (1980) “Primogeniture, entails and endowments in English

classical economics”.History of Political Economy.12:4

SMITH, A. (1776) An inquiry into nature and causes of the Wealth of Na-
tions.

VIDAL (1993).La transmision à cause de mort de l´entreprise familiale.

Toulouse: Université de Sciences Sociales.

14
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DT 2OO1-2 VOLUNTEER NONPROFITS’ PROVISION OF CO-

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16