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Title: Evidence on the Impact of Progressive State Taxes on the Locations and Estates of the Rich
Citation Type: Working Paper
Publication Year: 2002
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Abstract: This paper presents new evidence on how state tax policies affect the migration behavior and reported estates of very high-income and high-wealth individuals. We utilize data on federal estate tax return filings by state spanning a period of 33 years, together with Census data on the concentration of high-income people by state at younger ages, and take advantage of the natural experiments created by variation in tax rates across states and time. In the cross-section, we find that inheritance, estate, sales, and income taxes all had significant negative influences on the number of federal estate tax returns filed in a state, after controlling for the state's population of younger high-income people, its overall number of deaths, and other factors. This seems to support the notion that high income people tended to move to states with tax systems that were more favorable to them as they grew older. When we control for state-specific fixed-effects, the impact of inheritance and estate taxes on the migration decisions of the wealthy elderly remains robust, but the effects of other taxes become inconclusive. We also find in the cross section an interesting pattern of relationships between different types of state taxes and the average size of gross estate reported in a state, as well as with the number of high income younger people living in the state. But in both of these cases, estimates of the tax effects tend to become smaller when we control for state fixed-effects, and the standard errors are such that we can no longer be confident of the magnitude or direction of the effects. Finally, aggregate gross estates reported in each state, which should depend on some combination of migration, savings behavior, and various tax avoidance activities, are found to be highly elastic with respect to state inheritance and estate tax rates.
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Authors: Bakija, Jon; Slemrod, Joel
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Institution: Williams College
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Data Collections: IPUMS USA, IPUMS CPS
Topics: Other
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