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Tax Changes and Asset Pricing: Time-Series Evidence

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  • Clemens Sialm

Abstract

The effective tax rate on equity securities has fluctuated considerably in the U.S. between 1917-2004. This study investigates whether personal taxes on equity securities are related to stock valuations using the time-series variation in tax burdens. The paper finds an economically and statistically significant relationship between asset valuations and personal tax rates. Consistent with tax capitalization, stock valuations tend to be relatively low when tax burdens are relatively high.

Suggested Citation

  • Clemens Sialm, 2005. "Tax Changes and Asset Pricing: Time-Series Evidence," NBER Working Papers 11756, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11756
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    Cited by:

    1. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-1383, September.
    2. Gene Amromin & Paul Harrison & Steven Sharpe, 2008. "How Did the 2003 Dividend Tax Cut Affect Stock Prices?," Financial Management, Financial Management Association International, vol. 37(4), pages 625-646, December.
    3. Garlappi, Lorenzo & Huang, Jennifer, 2006. "Are stocks desirable in tax-deferred accounts?," Journal of Public Economics, Elsevier, vol. 90(12), pages 2257-2283, December.
    4. Clemens Sialm, 2006. "Investment Taxes and Equity Returns," NBER Working Papers 12146, National Bureau of Economic Research, Inc.
    5. Marc Steffen Rapp & Bernhard Schwetzler, 2008. "Equilibrium Security Prices with Capital Income Taxes and an Exogenous Interest Rate," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(3), pages 334-351, September.
    6. Anthony M. Diercks & William Waller, 2017. "Taxes and the Fed : Theory and Evidence from Equities," Finance and Economics Discussion Series 2017-104, Board of Governors of the Federal Reserve System (U.S.).
    7. Rapp, Marc Steffen & Schwetzler, Bernhard, 2008. "Equilibrium security prices with capital income taxes and an exogenous interest rate," CEFS Working Paper Series 2008-08, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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