Lower Inheritance Taxes Spur Entrepreneurship and Economic Growth

The inheritance tax debate is often framed in terms of redistribution of wealth and preventing the passing down of wealth across generations. When inheritance tax is considered in connection with businesses, however, the scope of the discussion broadens. We must also examine how the tax burden affects corporate governance, succession methods, and entrepreneurship. This is because a high inheritance tax does more than simply impose a tax burden; it directly influences how firms choose their ownership and management structure.

A high inheritance tax burden makes it difficult for a founder’s heirs to retain both equity stakes and managerial control. If shares must be sold to pay the tax, the separation of ownership and management can accelerate. The share of owner-managed firms declines, while the share of professionally managed firms rises. If this shift results not from market judgment but from pressure exerted by the tax system, firms have less room to choose their own governance structure.

Sweden’s experience shows how inheritance tax affects business succession. Sweden maintained some of the world’s highest inheritance and gift taxes from the 1970s through the 1990s. During that period, the founder of IKEA relocated abroad, and the company’s ownership structure shifted toward a foundation-centered model. Sweden abolished its inheritance tax in 2004. A Stockholm University study also found that, after the repeal, investment and growth increased significantly among family firms with successors. As the tax burden eased, owner-managed firms were able to avoid unwanted governance changes and continue growing while preserving the unity of ownership and management.

The assumption that the separation of ownership and management is always best also deserves reconsideration. A professional management system has the advantage of enhancing expertise and organizational efficiency. At the same time, when the interests of owners and managers diverge, agency problems can become more serious. Berle and Means (1932) explained the transition from an era of owner-managers represented by Edison, Ford, and Rockefeller to one in which large corporations without controlling shareholders were run by professional managers. Rather than presenting the separation of ownership and management as an ideal form, they also pointed out the risks that could arise in the process.

Entrepreneurship often appears most strongly in firms where ownership and management are closely combined. That was true of Ford and Edison, and today as well, innovative companies such as Tesla, Meta, Amazon, and NVIDIA have seen founders or key owners exercise major influence over long-term strategy and key decision-making. Professionally managed firms have strengths in organizational stability and efficiency gains. Owner-managed firms may have strengths in long-term investment involving risk-taking and in swift decision-making. Which form is more suitable depends on the industry and the firm’s stage of growth.

At the root of Korean entrepreneurs’ drive is often the modest motivation of wanting to pass their company on to the next generation. The wish to say, “I want to pass the company I built on to my children,” does not simply mean serving family interests. It is also connected to a long-term sense of responsibility to preserve accumulated technology, jobs, and business relationships, and to help the firm grow further. In this article, that may be called “ordinary entrepreneurship.” A system that institutionally encourages the separation of ownership and management demands a new kind of entrepreneurship from businesspeople—one that prioritizes service to society as a whole over the motive of family succession. It is a kind of public, or “Confucian,” entrepreneurship. Social responsibility is important. But caution is needed before enforcing a single unverified motive through institutional design.

Whether owner-management or professional management is more appropriate should be determined by the market, not by the government. Likewise, whether ordinary entrepreneurship or public entrepreneurship produces better outcomes should be left to market evaluation. The public needs to be fully informed about how inheritance tax affects corporate governance and entrepreneurship. Firms, investors, and citizens should be able to compare and choose among the outcomes of different governance structures.

In the domestic capital market, the relationship between institutional investors and the policy authorities must also be examined. In an environment where government influence is strong, if control of large corporations shifts rapidly to funds and institutional investors, policy influence over major corporate decisions may expand. If inheritance tax reduces the number of owner-managed firms and promotes the institutionalization of managerial control, concerns that our economy may gradually tilt toward a state-led decision-making structure should also be part of the discussion.

Inheritance tax also warrants reconsideration from the perspective of ordinary citizens. If redistribution and preventing the intergenerational transfer of wealth are its core purposes, one possible option would be to refund inheritance tax revenue to all citizens in the same per capita amount. The government would then serve as a channel that collects the tax and returns it to the people. Given that separate taxes and budgets already exist for welfare and education, the intended use of inheritance tax revenue should be designed more clearly.

Inheritance tax rates need to be eased to a level that does not undermine entrepreneurial risk-taking and long-term investment. The range of choices available for business succession should be broadened, and changes in ownership structure in unwanted directions due to taxation should be reduced. It is also possible to discuss ways of returning the revenue raised to the public in a transparent and equitable manner. The time has come for reform of the inheritance tax system that can achieve both creative private-sector business activity and a fair economy.

Kangwon, Professor, School of Business Administration, Sejong University

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Original title: 상속세 인하가 여는 기업가정신과 경제성장의 선순환

Author: Won Kang

Date: 2026-07-03

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=29246