Wealth Transfer Tax and Wealth Inequality

This study investigates the impact of wealth transfer tax on wealth inequality and finds a negative association, leveraging the 2009 tax cut in Taiwan’s estate and gift taxes. We implement the synthetic control method to estimate the tax cut’s causal impact on inequality. The estate tax cut enlarges the inequality; the top one percent’s wealth share rises 0.690 to 2.189 percentage points in six years after the tax reform. The tax cut-induced expanding inheritance inequality supports our findings. We also show that changes in tax avoidance behaviors may explain the immediate and a part of the long-run impacts estimated on inequality. JEL Classification: D31, E21, H23