Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1032: Inheritance Taxation in Sweden, 1885–2004: The Role of Ideology, Family Firms and Tax Avoidance

Magnus Henrekson () and Daniel Waldenström ()
Additional contact information
Magnus Henrekson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Daniel Waldenström: Uppsala University, Postal: and Research Institute of Industrial Economics

Abstract: This paper studies the evolution of Swedish inheritance taxation since the late nineteenth century to its abolition in 2004. Our contribution is twofold. First, we compute the annual effective inheritance tax rates for different sizes of bequests, if the inherited assets were family firm equity or not, accounting for all relevant exemptions, deductions and valuation discounts. Second, we attempt to explain changes in inheritance taxation over time. Ideology appears to be the main driver of the sharp tax increases of the 1930s through the 1960s. Wartime economies with higher pressures on the people induced politicians to raise inheritance taxes on the wealthy, primarily during the First World War. We also document increased opportunities for tax planning for the wealthy, most notably a series of tax cuts on inherited family firms in the 1970s. This rise in avoidance opportunities for the rich while middle-class heirs face growing inheritance tax rates undermined the legitimacy of the tax and led to its repeal.

Keywords: Gift tax; Inheritance tax; Estate tax; Tax avoidance; Excess burden; Entrepreneurship; Ownership transfers of family firms

JEL-codes: D31; H20; K34

46 pages, First version: July 6, 2014. Revised: May 28, 2015.

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