Abstract: Paper No. 194
Estate Taxes, Life Insurance, and Small Business
Douglas Holtz- Eakin, John Phillips, and Harvey Rosen
October 1998
One criticism of the estate tax is that it prevents the owners of
family businesses from passing their enterprises onto their children. The
problem is that it may be difficult to pay estate taxes without
liquidating the business. A natural question is why individuals with such
concerns do not purchase enough life insurance to meet their estate tax
liabilities. This paper examines whether and how people use life insurance
to deal with the estate tax. We find that, other things being the same,
business owners purchase more life insurance than other individuals.
However, on the margin, their insurance purchases are less responsive to
estate tax considerations and they are less likely to have the wherewithal
to meet estate tax liabilities out of liquid assets plus insurance.
A revised version of this paper appears as CPR
Working Paper No. 10. Those interested should see that
version.
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