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Measuring Permanent Responses to Capital-Gains Tax Changes in Panel Data

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  • Burman, Leonard E
  • Randolph, William C
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    Abstract

    The authors use panel data and information about differences in state tax rates to separate the effects of transitory and permanent tax rate changes on capital-gains realizations behavior. The estimated effect of permanent change is substantially smaller than the effect of transitory change. The difference is even larger than differences between estimates from past micro data studies, which have primarily measured the transitory effect, and time-series studies, which have primarily measured the permanent effect. The authors' results resolve a long-standing conflict between micro data and time-series studies of how marginal tax rates affect capital-gains realizations behavior. Copyright 1994 by American Economic Association.

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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 84 (1994)
    Issue (Month): 4 (September)
    Pages: 794-809

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    Handle: RePEc:aea:aecrev:v:84:y:1994:i:4:p:794-809

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    1. Auten, Gerald E & Clotfelter, Charles T, 1982. "Permanent versus Transitory Tax Effects and the Realization of Capital Gains," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 613-32, November.
    2. Martin Feldstein & Joel Slemrod & Shlomo Yitzhaki, 1981. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains," NBER Working Papers 0250, National Bureau of Economic Research, Inc.
    3. Joseph E. Stiglitz, 1983. "Some Aspects of the Taxation of Capital Gains," NBER Working Papers 1094, National Bureau of Economic Research, Inc.
    4. Auten, Gerald E. & Burman, Leonard E. & Randolph, William C., 1989. "Estimation and Interpretation of Capital Gains Realization Behavior: Evidence from Panel Data," National Tax Journal, National Tax Association, vol. 42(3), pages 353-74, September.
    5. George M. Constantinides, 1983. "Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns," NBER Working Papers 1176, National Bureau of Economic Research, Inc.
    6. Lee, Lung-fei & Maddala, G S & Trost, R P, 1980. "Asymptotic Covariance Matrices of Two-Stage Probit and Two-Stage Tobit Methods for Simultaneous Equations Models with Selectivity," Econometrica, Econometric Society, vol. 48(2), pages 491-503, March.
    7. Kiefer, Donald W., 1990. "Lock-In Effect Within a Simple Model of Corporate Stock Trading," National Tax Journal, National Tax Association, vol. 43(1), pages 75-94, March.
    8. Bogart, William T & Gentry, William M, 1995. "Capital Gains Taxes and Realizations: Evidence from Interstate Comparisons," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 267-82, May.
    9. Gillingham, Robert & Greenlees, John S., 1992. "The Effect of Marginal Tax Rates on Capital Gains Revenue: Another Look at the Evidence," National Tax Journal, National Tax Association, vol. 45(2), pages 167-77, June.
    10. Auerbach, Alan J., 1989. "Capital Gains Taxation and Tax Reform," National Tax Journal, National Tax Association, vol. 42(3), pages 391-401, September.
    11. Joel Slemrod & William Shobe, 1990. "The Tax Elasticity of Capital Gains Realizations: Evidence from a Panel of Taxpayers," NBER Working Papers 3237, National Bureau of Economic Research, Inc.
    12. Burman, Leonard E. & Clausing, Kimberly A. & O'Hare, John F., 1994. "Tax Reform and Realizations of Capital Gains in 1986," National Tax Journal, National Tax Association, vol. 47(1), pages 1-18, March.
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