Alternative methods for adjusting realization based capital gains taxes
Capital gains taxation on a realization basis is known to give rise to a number of distortions and to several arbitrage opportunities that can result in a significant erosion in the tax base. Most countries tackle these problems through a series of "ad hoc" adjustments to "pure" realization based taxation, such as separate treatment of ordinary income and capital gains, reduced tax rates on long-term capital gains, limited loss offsets. The theoretical literature proposes several methods which may provide a more comprehensive solution along the lines suggested by Vickrey (1939) and Meade (1978). However no country, except Italy, have experimented any of these methods. This paper reviews the alternatives in order to evaluate them primarily on the basis of compliance and administrative costs and political feasibility. The analysis highlights that most of the difficulties in the implementation of any of the comprehensive solutions are related to the taxation of intermediate payments such as dividends. This issue has been relatively neglected by the existing literature. We show that no proposal may overcome all the objections raised in the literature and in the debate on the Italian experiment. Each method should be judged as a second best solution and evaluated with reference to a specific institutional and economic environment.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
When requesting a correction, please mention this item's handle: RePEc:mul:je8794:doi:10.1429/24805:y:2007:i:2:p:141-170. 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.