This paper investigates behavioral responses to inheritance taxation in an inter-temporal
framework. Our empirical strategy exploits original quasi-experimental variation created by
the French preferential tax scheme for transmission through life insurance. The analysis is
based on a unique longitudinal data set of life insurance policies over the period 2003-2013.
We obtain two main results. First, we document large bunching at age 70 leading to important
timing responses in the short term but modest inter-temporal shifting in the medium term.
Second, we find compelling evidence of a negative effect of inheritance taxation on life insurance
accumulation at the individual level. Consistent with our estimated elasticity of taxable bequest,
we find that optimal inheritance tax rate might be as large as 55%–70%.
Our results can be rationalized by an inter-temporal model of transfer taxation with two assets.
This model is able to take into account the different behavioral responses to taxation occurring
over time and between assets. In this model, individuals face a trade-off between accumulating
an asset A for fiscal purposes or enjoying greater utility from an asset B during their lifetime
in return for a higher tax burden at death.