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Intertemporal Tax Discontinuities

Author

Listed:
  • Douglas A. Shackelford
  • Robert E. Verrecchia

Abstract

We define an intertemporal tax discontinuity (ITD) as a circumstance in which different tax rates are applied to gains realized at one point in time versus some other point in time. We study the effects of ITDs on market behaviors at the time of disclosures of firm performance, assuming that all investors who trade firm equities are subject to tax. The results of our paper suggest that relative to an economy in which ITDs are absent, ITDs may dampen trading volume and amplify price changes at the time of disclosure.

Suggested Citation

  • Douglas A. Shackelford & Robert E. Verrecchia, 2002. "Intertemporal Tax Discontinuities," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(1), pages 205-222, March.
    • Handle: RePEc:bla:joares:v:40:y:2002:i:1:p:205-222
    DOI: 10.1111/1475-679X.00044
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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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