A Study about the Effect of Tax System to Parent’s Selection between Gifts and Bequests

Abstract

In 2003, the tax system for clearing of the gifts tax paid to the gifts in the past when a child inherits his parent’s property introduced. Before introducing this system, the gifts tax was very heavy, comparing the inheritance tax. However, the gifts tax has become relative low by applying this system. In this paper, we examine the theoretical price of gifts and bequests, basing the tax system in Japan to gifts and bequests, such as tax rate, one’s basic deduction, clearing of the gifts tax paid to gifts, progressive taxation and so on, and we analyze the optimal allocation between gifts and bequests by parents in which the marginal price of gifts is equal to that of bequests.