Testing for a Bequest Motive Using Cross-State Variation in Bequest Taxes: Technical Paper 2003-01

Working Paper
April 1, 2003

Benjamin R. Page

There are two broad categories of explanations for why people leave bequests. Bequests may be intentional, for a variety of reasons including altruism, “joy of giving,” or strategic considerations. Or they may simply be accidental, because people hold wealth for various reasons and life spans are uncertain. This paper attempts to determine whether bequests are intentional or accidental by looking at the effect of state bequest taxes (estate or inheritance taxes) on the giving of gifts while people are alive. If bequests are accidental, bequest taxes should have no effect on gift-giving; they are irrelevant to the consumer’s behavior. However, if bequests are intentional, higher bequest taxes may lead people to substitute additional gifts for bequests, because higher taxes make gifts a relatively cheaper form of wealth transfer. The paper finds evidence that people in higher-tax states do give more gifts, controlling for wealth and other variables. That finding suggests that at least some part of bequests is intentional.