Andrew Leigh and I have a new paper out “Did the Death of Australian Inheritance Taxes Affect the Death Rate?” It is the latest in our series of papers looking for unusual days. Basically, we find daily time series data on anything and ask ourselves what events might have made a day unusual. Then we look at that day and compare it to all other days to see if that is so. (See, for example, our work on 1st January, 2000. Also, coming soon, 1st July, 2004 and 1st April every year).
In this installment, we looked at deaths. Given the debate in the US about abolishing the estate tax (see, for example, Greg Mankiw or Brad de Long), we focussed on 1st July 1979; the day Australia abolished inheritance taxes. And was that day unusual. Yes, indeed it was.
To be most sensational about it: we found that about half of all those eligible for inheritance taxes in the last week of June 1979 appeared to ‘move’ their deaths to this first week of July. So people or families were willing to avoid death to avoid taxes. In other words, unlike other taxed activities, there is a positive relationship between death and taxes on death. Funeral homes in the US better gear up for a busy January 2010.[Andrew Leigh’s post on the subject is more accurate than this take and responsible readers should look there.]
Update (thanks to a commentator on Andrew’s blog): apparently, this is the type of research that gets the highest accolades. In 2001, a precurser paper by Kopczuk and Slemrod won an ‘IgNobel prize.’ Here is the entry:
Joel Slemrod, of the University of Michigan Business School, and Wojciech Kopczuk, of University of British Columbia [and who has since moved to Columbia University], for their conclusion that people find a way to postpone their deaths if that that would qualify them for a lower rate on the inheritance tax. [REFERENCE:”Dying to Save Taxes: Evidence from Estate Tax Returns on the Death Elasticity,” National Bureau of Economic Research Working Paper No. W8158, March 2001.]
Unlike these two, let me say to the awarding committee, we will definitely turn up if we get one of these.