<p>The main arguments against taxing productive assets would be along the Chamley-Judd arguments. Supply of capital is more elastic than supply of labor so when you tax capital most tax incidence falls on labor anyway.</p>
<p>Under original Chamley-Judd result all taxes on capital fall on labor. This strong result got challenged in recent theoretical literature, but <em>empirically</em> still <em>most</em> of the capital tax burden falls on labor (even if not all), see for example; <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682041" rel="nofollow noreferrer">Roy-Cesar &amp; Vaillancourt (2010)</a>, <a href="https://www.journals.uchicago.edu/doi/abs/10.1086/209877" rel="nofollow noreferrer">Gruber, 1997</a>. Hence, you still would like to give preferential tax treatment to capital assets, as opposed to other unproductive assets such as let’s say art or even preferential treatment compared to labor.</p>

CC BY-SA 4.0
2024-11-17T21:50:03.117Z
If I understand it correctly the Charmley-Judd result is about taxes on capital income.  How exactly is it relevant to inheritance tax, which is a tax on capital itself (ie wealth not income) falling due after the owner of the capital has died?
Adam Bailey
CC BY-SA 4.0
2024-11-18T02:01:52.323Z
@AdamBailey yes but taxes on productive capital are in essence indirectly taxes on capital income in a sense they lower returns to capital. When a risk neutral entrepreneur decides whether to invest in capital good they look at discounted cumulative net returns to capital. This inheritance tax lowers these net present returns. So it is in a roundabout way tax on capital income. They should still lower supply of capital in long run, which should still result in lower wages
1muflon1
CC BY-SA 4.0
2024-11-17T19:14:52.553Z
2024-11-17T19:14:52.553Z
1muflon1
<p>This question is prompted by recent proposals by the UK government to change the treatment of farms for inheritance tax purposes. Under the proposals, farms would - as they have done for many years - qualify for favourable inheritance tax treatment relative to most other assets, but the extent of favourable treatment would be considerably reduced.</p>
<p><em>Question</em>: What economic arguments, if any, may be made for or against favourable treatment of farms in the context of a country's inheritance tax.  Please note I am <strong>not</strong> asking about the specific UK proposals.</p>
<p><em>My thoughts</em></p>
<p>It may be helpful to divide the question into two parts: a) arguments for or against favourable treatment of productive business assets relative to other assets, mainly residential property and financial assets but also other private possessions including household goods, vehicles, jewellery, works of art, etc.; b) arguments for or against favourable treatment of farms relative to other productive business assets.</p>
<p>I am aware of two main arguments for an inheritance tax: a) to mitigate, over time, extremes of inequality; b) to raise revenue to help pay for government expenditure.  Neither of these arguments seems to provide any rationale for treating farms differently from other assets.</p>
<p>I can see an argument for supporting productive business assets in sectors producing essential goods, so as to avoid excessive reliance on imports which might be at risk in the event of an international crisis or just changes in international markets.  Those sectors would include food-producing farms, but also those producing other essential goods such as energy.  However, a policy to support those sectors would ideally target the productive activity itself, not the ownership of the assets (forced sales of farmland to pay inheritance tax would not prevent the land continuing to be farmed by the new owners).  Other instruments, such as an output-related subsidy, would therefore seem more effective means of support than favourable inheritance tax treatment.</p>

<taxation><agriculture>
Treatment of farms in respect of inheritance tax
Adam Bailey
# Treatment of farms in respect of inheritance tax

(Asked by: username_0 on 2024-11-14)

This question is prompted by recent proposals by the UK government to change the treatment of farms for inheritance tax purposes. Under the proposals, farms would - as they have done for many years - qualify for favourable inheritance tax treatment relative to most other assets, but the extent of favourable treatment would be considerably reduced.

*Question*: What economic arguments, if any, may be made for or against favourable treatment of farms in the context of a country's inheritance tax. Please note I am **not** asking about the specific UK proposals.

*My thoughts*

It may be helpful to divide the question into two parts: a) arguments for or against favourable treatment of productive business assets relative to other assets, mainly residential property and financial assets but also other private possessions including household goods, vehicles, jewellery, works of art, etc.; b) arguments for or against favourable treatment of farms relative to other productive business assets.

I am aware of two main arguments for an inheritance tax: a) to mitigate, over time, extremes of inequality; b) to raise revenue to help pay for government expenditure. Neither of these arguments seems to provide any rationale for treating farms differently from other assets.

I can see an argument for supporting productive business assets in sectors producing essential goods, so as to avoid excessive reliance on imports which might be at risk in the event of an international crisis or just changes in international markets. Those sectors would include food-producing farms, but also those producing other essential goods such as energy. However, a policy to support those sectors would ideally target the productive activity itself, not the ownership of the assets (forced sales of farmland to pay inheritance tax would not prevent the land continuing to be farmed by the new owners). Other instruments, such as an output-related subsidy, would therefore seem more effective means of support than favourable inheritance tax treatment.

**Tags:** taxation, agriculture


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## 1 answers

### Answer by username_1 on 2024-11-17. Score: 0

The main arguments against taxing productive assets would be along the Chamley-Judd arguments. Supply of capital is more elastic than supply of labor so when you tax capital most tax incidence falls on labor anyway.

Under original Chamley-Judd result all taxes on capital fall on labor. This strong result got challenged in recent theoretical literature, but *empirically* still *most* of the capital tax burden falls on labor (even if not all), see for example; [Roy-Cesar & Vaillancourt (2010)](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682041), [Gruber, 1997](https://www.journals.uchicago.edu/doi/abs/10.1086/209877). Hence, you still would like to give preferential tax treatment to capital assets, as opposed to other unproductive assets such as let’s say art or even preferential treatment compared to labor.

> **Comments:**
> **username_0**: If I understand it correctly the Charmley-Judd result is about taxes on capital income.  How exactly is it relevant to inheritance tax, which is a tax on capital itself (ie wealth not income) falling due after the owner of the capital has died?  
> **username_1**: @AdamBailey yes but taxes on productive capital are in essence indirectly taxes on capital income in a sense they lower returns to capital. When a risk neutral entrepreneur decides whether to invest in capital good they look at discounted cumulative net returns to capital. This inheritance tax lowers these net present returns. So it is in a roundabout way tax on capital income. They should still lower supply of capital in long run, which should still result in lower wages  

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