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Tax Planning by Mutual Funds: Evidence From Changes in the Capital Gains Tax Rate

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  • Chen, Feng
  • Kraft, Arthur
  • Weiss, Ira

Abstract

We investigate whether mutual funds engage in tax planning by testing how they respond to changes in the capital gains tax rates. While previous evidence suggests that individual investors time capital gains realizations, mutual fund managers may not tax plan like individuals because fund managers have incentives to consider the tax liability of both current and potential investors. Our analysis spans over 44 years and six major tax changes, allowing us to examine the effects of both tax rate increases and decreases. Overall, we find evidence consistent with tax planning by managers of both open-end and closed-end mutual funds.

Suggested Citation

  • Chen, Feng & Kraft, Arthur & Weiss, Ira, 2011. "Tax Planning by Mutual Funds: Evidence From Changes in the Capital Gains Tax Rate," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(1), pages 105-134, March.
    • Handle: RePEc:ntj:journl:v:64:y:2011:i:1:p:105-34
    DOI: 10.17310/ntj.2011.1.05
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    Cited by:

    1. Sanjay Kanti Das, 2012. "Factors Influencing the Mutual Fund Scheme Selection by Retail Investor’s in Assam: An Empirical Analysis," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 3(3), pages 17-23, September.
    2. Johnson, Woodrow T. & Poterba, James M., 2016. "The effect of taxes on shareholder inflows around mutual fund distribution dates," Research in Economics, Elsevier, vol. 70(1), pages 7-19.
    3. Beggs, William & Hill-Kleespie, Austin & Liu, Yanguang, 2022. "Mutual fund tax implications when investment advisors manage tax-exempt separate accounts," Journal of Banking & Finance, Elsevier, vol. 134(C).

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