@techreport{Grossmann2008Should,
abstract = {Inheritance taxes may induce heirs to discontinue family firms. Because firm dissolution incurs transaction costs, a preferential tax treatment of transferred family businesses seems to be desirable from a macroeconomic viewpoint. The support of dynastic succession, however, entails also a cost on the economy if firm continuation by less able heirs prevents entry into entrepreneurship. Here, we investigate analytically and quantitatively the trade-off between transaction costs saved and creative destruction prevented. We find that a unique general equilibrium exists at which, depending on the institutional setup, low-ability heirs either abandon (Type 1) or continue (Type 2) a family business. A calibration of the model with German data suggests that preferential tax treatment of family firms has severe negative consequences on macroeconomic performance if it causes a threshold crossing from Type 1 to Type 2 equilibrium. It also reveals that the targeted persons, i.e. the entrepreneurs that are caused to continue a business, always lose relative to their status in an economy without continuation-friendly tax policy.},
address = {M\"{u}nchen},
author = {Volker Grossmann and Holger Strulik},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {H25; L26; J24; 330; bequest taxation; creative destruction; entrepreneurship; family firms; preferential tax treatment; Steuerbeg\"{u}nstigung; Familienunternehmen; Betriebs\"{u}bergang; Unternehmer; Innovation; Transaktionskosten; Allgemeines Gleichgewicht; Deutschland},
language = {eng},
number = {2235},
publisher = {CESifo},
title = {Should continued family firms face lower taxes than other estates?},
type = {CESifo working paper},
url = {http://hdl.handle.net/10419/26280},
year = {2008}
}
