A majority of the Dutch population is open to higher inheritance tax rates, according to new research by the Netherlands Bureau for Economic Policy Analysis (CPB). The findings were discussed by Associate Professor Aart Gerritsen of Erasmus School of Economics on the Dutch public radio show dr. Kelder & Co.
Public support stronger than expected
For the study, the CPB asked a representative sample of approximately 4,500 Dutch citizens about the inheritance tax rates they consider appropriate for inheritances from parents. Both the average and the median respondent favoured higher rates than those currently prescribed by law. This holds not only for large inheritances of one million euros, but also for middle- (€100,000) and small-sized (€10,000) inheritances.
Gerritsen observes that the inheritance tax is too often portrayed as a tax that enjoys virtually no public support. The new study presents a different picture: ‘The narrative, often promoted by lobby groups, that the inheritance tax is the “most hated tax” clearly requires considerable qualification.’ However, he emphasises that public opinion alone should not determine tax policy. Equally important is what economic research has to say about designing a fair and efficient tax on inherited wealth.
Higher rates economically justifiable
According to Gerritsen, the optimal inheritance tax rate depends on the reason why people leave an inheritance in the first place. Some inheritances are "accidental", arising simply because people die earlier than expected. Economic theory suggests that taxing such inheritances has little or no effect on the behaviour of the donor, while it does contribute to a more just distribution of resources. Moreover, inheritance taxes lead to more efficient labour markets as they raise the incentive for heirs to increase their labor supply.
Other inheritances are intentionally bequeathed. Gerritsen argues that taxing intentional inheritances is also justified. Leaving an inheritance may be viewed as a form of consumption by the donor, comparable to other types of (taxed) spending. Since, in practice, most inheritances are a combination of intended and accidental bequests, the optimal tax rate lies somewhere between the standard VAT rate of 21% and a considerably higher percentage. Therefore, according to Gerritsen, the current top tax rate of 20% on inheritances from parents may well be suboptimally low.
- More information
Watch the interview with Aart Gerritsen here. For more information, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics, via rdegroot@ese.eur.nl or by telephone on +31 6 53 641 846.
