Avoiding taxes by transfers within the family

We document an episode with considerable tax avoidance that occurred in Italy after 2008 when the Italian government reformed the property taxation by abolishing taxation on principal residences and increasing taxation on secondary properties. In the presence of a very low inter vivos gift tax, Italian families found it beneficial to redistribute properties among their members. Difference-in-difference estimates indicate that property tax reform increased the probability that high-wealth donors made an inter vivos property gift relative to less wealthy donors. This in turn affected the donees’ income capacity and consumption, increasing inequalities. We show that family ties give room for households’ strategic behavior to avoid taxes; hence, it is relevant to take them into consideration when designing effective fiscal policies.