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Do High Taxes Lock-in Capital Gains? Evidence from a Flat Rate Tax System

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Author Info
Daunfeldt, Sven-Olov () (The Swedish Retail Institute (HUI))
Praski-Ståhlgren, Ulrika () (The Department of Economics)
Rudholm, Niklas () (The Swedish Retail Institute (HUI))

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Abstract

The purpose of this paper is to study, using a comprehensive Swedish panel data set, whether investors are less willing to realize capital gains when the marginal tax rate on capital gains is relatively high. In Sweden capital gains are taxed independently of ordinary income at a flat rate, making it possible to avoid endogenity problems and to include direct measures of capital gains taxation in the empirical analysis. The results indicate that a 10% increase in capital gains tax rate reduces the number of realizations of capital gains with 8.7% and the realized amount, given the decision to realize, with 1.9%. In addition, wealthy individuals seem to respond more to changes in capital gains tax rates than less-wealthy individuals.

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Publisher Info
Paper provided by The Swedish Retail Institute (HUI) in its series HUI Working Papers with number 6.

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Length: 25 pages
Date of creation: 31 Jan 2007
Date of revision:
Handle: RePEc:hhs:huiwps:0006

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Postal: The Swedish Retail Institute (HUI), Regeringsgatan 60, 103 29 Stockholm, Sweden
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Related research
Keywords: Capital gains realizations; tax avoidance; panel data;

Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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  1. Pietola, Kyosti & Myyra, Sami & Pouta, Eija, 2009. "Fiscal and trade distorting effects of capital gains tax on land sales - empirical evidence from agricultural land market in Finland," Discussion Papers 50040, MTT Agrifood Research Finland. [Downloadable!]
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