Estate Taxes, Labor Supply, and Economic Efficiency

The key conclusions of the paper are that the federal estate tax reduces the labor supply and personal saving and increases the cost of capital (the hurdle rate) for new investment. In addition, entrepreneurs are particularly hard hit by the estate tax as they face higher average estate tax rates and higher capital costs for new investment than do other individuals. Finally, the federal estate tax causes distortions in household decision-making about work effort, saving, and investment (and thus loss of economic efficiency) that are even greater in size than those from other taxes on income from capital.