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Tax Regimes and Capital Gains Realizations

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  • Jacob, Martin

    (Uppsala Center for Fiscal Studies)

Abstract

This paper analyzes the effects of progressive versus proportional taxation on capital gains realization behavior. Using a comprehensive panel of over 230,000 individuals in Sweden for 1973-1996, this paper shows after progressive capital gains taxes were cut from over 80% in the 1980s to a proportional tax rate of 30% in 1991, especially high-income taxpayers increased capital gains realizations. The reaction to the introduction of the proportional capital gains tax rate is more pronounced among younger individuals. This paper also shows that under a progressive (proportional) tax regime, investors with excess income are less (more) likely to realize capital gains than individuals with liquidity constraints. Hence, proportional versus progressive taxation plays an important role in capital gains realizations of private investors.

Suggested Citation

  • Jacob, Martin, 2011. "Tax Regimes and Capital Gains Realizations," Working Paper Series, Center for Fiscal Studies 2011:9, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uufswp:2011_009
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    More about this item

    Keywords

    Capital Gains Tax; Proportional Tax; Progressive Tax; Top Incomes; Life-Cycle;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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