Inheritance Taxes as Silver Spurs: How Wealth Levies Can Fuel Global Entrepreneurship

The Asian Development Bank’s Economics Working Paper Series, in collaboration with the University of Macau, has released a study that unsettles a long-held assumption: that inheritance taxes stifle entrepreneurial energy. Authored by Yang Zhang and Ziang Qiu of the University of Macau, together with Donghyun Park and Shu Tian of the ADB, the research covers 55 countries over more than two decades, combining policy records on inheritance taxation with entrepreneurship indicators from the Global Entrepreneurship Monitor. The analysis reveals a consistent pattern. Far from being shackles on ambition, higher inheritance taxes are associated with stronger entrepreneurship. Where governments lowered or abolished them, entrepreneurship suffered.

The Rise of “Inheritocracy”

At the heart of the study lies the fear of an “inheritocracy,” a system in which inherited wealth dictates opportunity more than talent or effort. In countries like France and Germany, inherited assets already account for more than half of total wealth, compared to far lower levels in the 1960s. The return of this dynastic concentration of resources has troubling implications. It not only entrenches inequality but also stifles innovation, since family fortunes can overshadow fresh ideas. Inheritance taxation, though contentious, has long been one of the few policy tools available to level the playing field. Advocates hail it as progressive, affecting only a small slice of estates while preventing the formation of permanent rentier elites. Critics counter that it amounts to double taxation and risks deterring entrepreneurial families from investing in ventures at all.

Beyond Counting Start-Ups

To move beyond rhetoric, the authors designed a more comprehensive measure of entrepreneurship than the simple tallies of start-ups or self-employment rates used in earlier research. Their composite entrepreneurship index captures three dimensions: institutional environment, entrepreneurial performance, and entrepreneurial quality. This broader lens reflects not just the number of new businesses but also the conditions in which they thrive, the inclusivity of participation across genders, and the societal esteem given to entrepreneurs. Using a staggered difference-in-differences approach, the study compared entrepreneurship scores before and after reforms, carefully isolating the impact of tax policy. The results consistently showed that increases in inheritance taxes lifted entrepreneurship scores, while decreases dragged them down. Importantly, the gains were most pronounced in the institutional and quality dimensions, suggesting that such taxes foster healthier ecosystems and higher-value ventures rather than directly boosting short-term performance outcomes.

When Uncertainty Meets Tax Policy

One of the more striking findings comes from the interaction between inheritance taxes and economic policy uncertainty. Times of instability are usually seen as dampeners of entrepreneurial spirit. Yet the study discovered that the positive impact of inheritance taxes on entrepreneurship actually intensifies in such conditions. When passive wealth is taxed away and traditional employment paths appear shaky, potential heirs and entrepreneurs are more likely to build their own ventures. Conversely, when inheritance taxes are cut during uncertain times, the decline in entrepreneurship is even sharper. This nuance reveals the complex ways in which fiscal policy and macroeconomic conditions combine to shape individual behavior. It also suggests that inheritance taxes provide not just revenue, but resilience, pushing people toward productive activity even in turbulent times.

Global Contrasts and Policy Lessons

The international dataset highlights the diversity of approaches. Austria, Sweden, and Singapore abolished inheritance taxes during the study period, and in each case, entrepreneurial vitality fell. By contrast, Japan, with one of the highest inheritance tax rates in the world at 55 percent, maintains a strong entrepreneurial ecosystem. Recent hikes in the United States, South Africa, and Brazil likewise coincided with boosts in entrepreneurship scores. These cases underline the study’s central point: the direction of reform matters. Raising taxes on inherited wealth promotes societal dynamism, while lowering them risks entrenching privilege and passivity. For policymakers, the implications are twofold. Inheritance taxation should not be seen merely as redistribution, but also as an engine of innovation and renewal. And in an increasingly globalized economy, coordination is crucial. Without it, countries may race to the bottom to attract wealthy families, undermining both equity and entrepreneurship. Harmonizing tax policies, the authors argue, would ensure fairness and reduce avoidance while preserving the entrepreneurial benefits uncovered by their research.

The paper’s conclusion is stark in its simplicity: inheritance taxes, often portrayed as punitive relics, may in fact be catalysts of creativity and ambition. By nudging individuals away from passive reliance on family wealth and toward building something of their own, such taxes serve as “silver spurs” for entrepreneurial societies. At a time when inheritocracy looms large and inequality widens, this finding is more than academic. It is a call for policymakers to rethink not only how wealth is distributed, but how innovation and opportunity can be sustained across generations.