Do Estate and Inheritance Taxes Affect Entrepreneurship?

Despite its relatively small role in the federal taxation system—accounting for less than 1 percent of revenues—the estate and gift tax is controversial. This brief surveys research on the effect of estate and inheritance taxes on entrepreneurship and presents new evidence. We find that receiving an inheritance increases the likelihood of owning and managing a business. The prospect of leaving an estate subject to taxation may reduce the likelihood of continued self-employment by encouraging retirement.