Advanced Search
MyIDEAS: Login to save this paper or follow this series

Progressivity of Capital Gains Taxation with Optimal Portfolio Selection

Contents:

Author Info

  • Michael Haliassos
  • Andrew B. Lyon

Abstract

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w4253.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4253.

as in new window
Length:
Date of creation: Jan 1993
Date of revision:
Publication status: published as Slemrod, Joel (ed.) Tax progressivity and income inequality. Cambridge; New York and Melbourne: Cambridge University Press, 1994.
Handle: RePEc:nbr:nberwo:4253

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  2. Shaw, Kathryn L, 1996. "An Empirical Analysis of Risk Aversion and Income Growth," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 14(4), pages 626-53, October.
  3. Gordon, Roger H. & Varian, Hal R., 1988. "Intergenerational risk sharing," Journal of Public Economics, Elsevier, Elsevier, vol. 37(2), pages 185-202, November.
  4. Joel Slemrod, 1992. "Taxation and Inequality: A Time-Exposure Perspective," NBER Working Papers 3999, National Bureau of Economic Research, Inc.
  5. Joel B. Slemrod, 1983. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 427-458 National Bureau of Economic Research, Inc.
  6. George M. Constantinides, 1983. "Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns," NBER Working Papers 1176, National Bureau of Economic Research, Inc.
  7. Joseph E. Stiglitz, 1983. "Some Aspects of the Taxation of Capital Gains," NBER Working Papers 1094, National Bureau of Economic Research, Inc.
  8. Auerbach, Alan J, 1992. "On the Design and Reform of Capital-Gains Taxation," American Economic Review, American Economic Association, American Economic Association, vol. 82(2), pages 263-67, May.
  9. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, Econometric Society, vol. 61(3), pages 589-611, May.
  10. Shmuel Kandel & Robert F. Stambaugh, 1991. "Asset Returns and Intertemporal Preferences," NBER Working Papers 3633, National Bureau of Economic Research, Inc.
  11. Segal, Uzi & Spivak, Avia, 1990. "First order versus second order risk aversion," Journal of Economic Theory, Elsevier, Elsevier, vol. 51(1), pages 111-125, June.
  12. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
  13. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 14(3), pages 365-374, December.
  14. James M. Poterba, 1986. "How Burdensome are Capital Gains Taxes?," NBER Working Papers 1871, National Bureau of Economic Research, Inc.
  15. Hendershott, Patric H. & Toder, Eric J. & Won, Yunhi, 1991. "Effects of Capital Gains Taxes on Revenue and Economic Efficiency," National Tax Journal, National Tax Association, vol. 44(1), pages 21-40, March.
  16. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(2), pages 263-86, April.
  17. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
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 in new window

Cited by:
  1. Carol C. Bertaut & Michael Haliassos, 1996. "Precautionary portfolio behavior from a life-cycle perspective," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 542, Board of Governors of the Federal Reserve System (U.S.).
  2. William Gale & Peter Orszag, 2005. "Economic Effects of Making the 2001 and 2003 Tax Cuts Permanent," International Tax and Public Finance, Springer, Springer, vol. 12(2), pages 193-232, March.
  3. Elizabeth M. Caucutt & Selahattin Imrohoroglu & Krishna B. Kumar, 2003. "Growth and Welfare Analysis of Tax Progressivity in a Heterogeneous-Agent Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 546-577, July.
  4. James B. Davies, 1995. "Distributional Effects of the Lifetime Capital Gains Exemption: Single vs. Multi-Year Analysis," Canadian Public Policy, University of Toronto Press, University of Toronto Press, vol. 21(s1), pages 159-173, November.
  5. Carol C. Bertaut, 1996. "Stockholding behavior of U.S. households: evidence from the 1983-89 Survey of Consumer Finances," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 558, Board of Governors of the Federal Reserve System (U.S.).
  6. Norman Schurhoff, 2004. "Capital gains taxes, irreversible investment, and capital structure," 2004 Meeting Papers, Society for Economic Dynamics 592b, Society for Economic Dynamics.
  7. Vijay M. Jog, 1995. "The Lifetime Capital Gains Exemption: Corporate Financing, Risk-taking and Allocation Efficiency," Canadian Public Policy, University of Toronto Press, University of Toronto Press, vol. 21(s1), pages 116-135, November.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4253. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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