IDEAS home Printed from https://ideas.repec.org/a/ibf/acttax/v5y2013i2p1-12.html
   My bibliography  Save this article

Capital Gains Taxation And Stock Market Investments: Empirical Evidence

Author

Listed:
  • Akinloye Akindayomi

Abstract

The objective of this study is to examine stock market investments responses to changes in capital gains tax rate. A priori, rational taxpayers are expected to respond to changes in this tax rate. For example, a reduction (increase) in capital gains tax rates may make taxpayers to unlock (lock-in) substantial amounts of accrued (realizable) appreciated gains. The findings of this study however reveal that capital gains realization and not capital gains tax rates impacts stock market investments in the U.S.

Suggested Citation

  • Akinloye Akindayomi, 2013. "Capital Gains Taxation And Stock Market Investments: Empirical Evidence," Accounting & Taxation, The Institute for Business and Finance Research, vol. 5(2), pages 1-12.
    • Handle: RePEc:ibf:acttax:v:5:y:2013:i:2:p:1-12
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v5n2-2013/AT-V5N2-2013-1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Boyer, Daniel J. & Russell, Susan M., 1995. "Is It Time for a Consumption Tax?," National Tax Journal, National Tax Association, vol. 48(3), pages 363-72, September.
    2. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "Tax Policy and Human-Capital Formation," American Economic Review, American Economic Association, vol. 88(2), pages 293-297, May.
    3. Judd, Kenneth L, 1998. "Taxes, Uncertainty, and Human Capital," American Economic Review, American Economic Association, vol. 88(2), pages 289-292, May.
    4. Harrison Hong & Jeremy C. Stein, 2003. "Differences of Opinion, Short-Sales Constraints, and Market Crashes," Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 487-525.
    5. Tao Zeng, 2009. "Stock Price Reactions to the Canadian Lifetime Capital Gains Exemption," Accounting & Taxation, The Institute for Business and Finance Research, vol. 1(1), pages 75-85.
    6. The Editors, 2009. "Acknowledgement of Reviewers," Europe-Asia Studies, Taylor & Francis Journals, vol. 61(1), pages 185-186.
    7. Zoran Ivković & James Poterba & Scott Weisbenner, 2005. "Tax-Motivated Trading by Individual Investors," American Economic Review, American Economic Association, vol. 95(5), pages 1605-1630, December.
    8. Peterman, William B., 2013. "Determining the motives for a positive optimal tax on capital," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 265-295.
    9. Boyer, Daniel J. & Russell, Susan M., 1995. "Is It Time for a Consumption Tax?," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(3), pages 363-372, September.
    10. Conesa, Juan Carlos & Krueger, Dirk, 2006. "On the optimal progressivity of the income tax code," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1425-1450, October.
    11. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    12. Carl Sanders & Christopher Taber, 2012. "Life-Cycle Wage Growth and Heterogeneous Human Capital," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 399-425, July.
    13. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    14. José-Miguel Gaspar & Massimo Massa & Pedro Matos & Rajdeep Patgiri & Zahid Rehman, 2013. "Payout Policy Choices and Shareholder Investment Horizons," Review of Finance, European Finance Association, vol. 17(1), pages 261-320.
    15. Clemens Sialm & Laura Starks, 2012. "Mutual Fund Tax Clienteles," Journal of Finance, American Finance Association, vol. 67(4), pages 1397-1422, August.
    16. Jens Matthias Arnold & Bert Brys & Christopher Heady & Åsa Johansson & Cyrille Schwellnus & Laura Vartia, 2011. "Tax Policy for Economic Recovery and Growth," Economic Journal, Royal Economic Society, vol. 121(550), pages 59-80, February.
    17. Poterba, James M., 1987. "How burdensome are capital gains taxes?: Evidence from the United States," Journal of Public Economics, Elsevier, vol. 33(2), pages 157-172, July.
    18. Graham, John R. & Raedy, Jana S. & Shackelford, Douglas A., 2012. "Research in accounting for income taxes," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 412-434.
    19. Tanzi,Vito, 2011. "Government versus Markets," Cambridge Books, Cambridge University Press, number 9781107096530.
    20. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R. & Krasny, Yoel & Ozelge, Sadi O., 2010. "The effect of holdings data frequency on conclusions about mutual fund behavior," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 912-922, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tomislav Globan & Tihana Skrinjaric, 2020. "Penny wise and pound foolish: capital gains tax and trading volume on the Zagreb Stock Exchange," Public Sector Economics, Institute of Public Finance, vol. 44(3), pages 299-329.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cassou, Steven P. & Gorostiaga, Arantza & Uribe-Zubiaga, Iker, 2013. "Policy effects of the elasticity of substitution across labor types in life cycle models," Economic Modelling, Elsevier, vol. 35(C), pages 59-70.
    2. He, Eric & Jacob, Martin & Vashishtha, Rahul & Venkatachalam, Mohan, 2022. "Does differential taxation of short-term relative to long-term capital gains affect long-term investment?," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    3. Poterba, James M., 2002. "Taxation, risk-taking, and household portfolio behavior," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 17, pages 1109-1171, Elsevier.
    4. Bailey, Warren & Kumar, Alok & Ng, David, 2011. "Behavioral biases of mutual fund investors," Journal of Financial Economics, Elsevier, vol. 102(1), pages 1-27, October.
    5. Martin Jacob, 2018. "Tax Regimes and Capital Gains Realizations," European Accounting Review, Taylor & Francis Journals, vol. 27(1), pages 1-21, January.
    6. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    7. Marekwica, Marcel, 2012. "Optimal tax-timing and asset allocation when tax rebates on capital losses are limited," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2048-2063.
    8. Buhlmann, Florian & Doerrenberg, Philipp & Voget, Johannes & Loos, Benjamin, 2020. "How do taxes affect the trading behavior of private investors? Evidence from individual portfolio data," ZEW Discussion Papers 20-047, ZEW - Leibniz Centre for European Economic Research.
    9. Luca Menicacci, 2022. "Financial reporting and book-tax conformity: A review of the issues," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2022(1), pages 41-77.
    10. Jing Xing, 2011. "Does tax structure affect economic growth? Empirical evidence from OECD countries," Working Papers 1120, Oxford University Centre for Business Taxation.
    11. Tang, Tanya Y.H. & Firth, Michael, 2012. "Earnings Persistence and Stock Market Reactions to the Different Information in Book-Tax Differences: Evidence from China," The International Journal of Accounting, Elsevier, vol. 47(3), pages 369-397.
    12. Anna Görlitz & Michael Dobler, 2023. "Financial accounting for deferred taxes: a systematic review of empirical evidence," Management Review Quarterly, Springer, vol. 73(1), pages 113-165, February.
    13. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-1383, September.
    14. Bo Becker & Zoran Ivković & Scott Weisbenner, 2011. "Local Dividend Clienteles," Journal of Finance, American Finance Association, vol. 66(2), pages 655-683, April.
    15. Ivkovic, Zoran & Weisbenner, Scott, 2009. "Individual investor mutual fund flows," Journal of Financial Economics, Elsevier, vol. 92(2), pages 223-237, May.
    16. Marek Kapička, 2015. "Optimal Mirrleesean Taxation in a Ben-Porath Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 219-248, April.
    17. Peress, Joel & Schmidt, Daniel, 2021. "Noise traders incarnate: Describing a realistic noise trading process," Journal of Financial Markets, Elsevier, vol. 54(C).
    18. Jacob, Martin, 2014. "Cross-base tax elasticity of capital gains," arqus Discussion Papers in Quantitative Tax Research 169, arqus - Arbeitskreis Quantitative Steuerlehre.
    19. Zoran Ivkovi & Scott Weisbenner, 2007. "Information Diffusion Effects in Individual Investors' Common Stock Purchases: Covet Thy Neighbors' Investment Choices," The Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1327-1357.
    20. Müller, Raphael & Spengel, Christoph & Vay, Heiko, 2020. "On the determinants and effects of corporate tax transparency: Review of an emerging literature," ZEW Discussion Papers 20-063, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    Stock Market Investment; Capital Gains Tax Rates; Realized Capital Gains;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:acttax:v:5:y:2013:i:2:p:1-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.