Family owners of businesses don’t work hard and should be taxed more

Family members running their own business work less hard than their non-family counterparts and should be taxed more to ensure they do work harder, says a study by a group of academics.  

The research, recently reviewed in an economics journal published by the London School of Economics, added that less efficient family members working for their businesses are effectively undermining economic growth.

“We (found) that family CEOs dedicate systematically fewer hours to work activities compared with professional CEOs. The difference – at least 9% of total hours worked – is due to two factors: family CEOs start work later in the day; and they are more likely to interrupt their day to devote time to personal activities.” The academics behind the research were Oriana Bandiera at LSE,  Andrea Prat at Columbia University, and Raffaella Sadun at Harvard Business School.

The research also found a correlation between the hours worked by a CEO and the efficiency of the business, when it came to things like productivity, profitability and sales growth. And from here there is a small step towards overall economic efficiency, say the academics. “Given the ubiquity of family-­run firms, differences in CEO hours worked may add up to a lot – in reduced profits, slower growth and lagging wages, all of which flow into the wider economy,” said the report.

Most controversially of all was the argument put forward by the academics that taxes on family businesses could help to instil greater efficiency.

“Our findings also raise a question for public finance: would an increase in taxation that affects the owners of family firms bring about an increase in productive efficiency? Such taxation might include an inheritance tax, a wealth tax or a reduction in the various forms of exemptions that family firms enjoy in many parts of the world,” say the academics.

Try telling that to the German Mittelstand….