We provide new data on capital gains realizations using a five-year stratified panel of taxpayers covering 1985-1989. We find, as earlier studies have, that capital gains realizations are very concentrated among the highest income groups. We use these data and data from the Federal Reserve Board Survey of Consumer Finances to draw inferences from a simulation model of the effects on progressivity and efficiency of alternative tax treatment of capital gains. Tax payments alone are not an accurate indication of the burden of a tax. Taxes generally create costs beyond the dollar value collected by causing persons to change their behavior to avoid the tax. Risk is also affected by the tax system. Beneficial risk-sharing characteristics of the tax system are frequently overlooked when examining the treatment of capital gains, We find that reforms comprising reductions in the capital gains tax rate offset by increases in the tax rate on other investment income are efficiency reducing. Surprisingly, we find that for taxpayers for whom loss limits are not binding a switch to accrual taxation is also efficiency reducing. For those taxpayers for whom loss limits are potentially binding, we find that large efficiency gains can be achieved by increasing the amount of capital losses that may be deducted against ordinary income. These results are partly attributable to changes in risk-sharing encompassed in these reforms.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4253.
Length: Date of creation: Jan 1993 Date of revision: Handle: RePEc:nbr:nberwo:4253
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Find related papers by JEL classification: H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Haliassos, Michael & Bertaut, Carol C, 1995.
"Why Do So Few Hold Stocks?,"
Economic Journal,
Royal Economic Society, vol. 105(432), pages 1110-29, September.
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