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Do High Taxes Lock-in Capital Gains? Evidence from a Flat Rate Tax System

Author

Listed:
  • Daunfeldt, Sven-Olov

    (The Swedish Retail Institute (HUI))

  • Praski-Ståhlgren, Ulrika

    (The Department of Economics)

  • Rudholm, Niklas

    (The Swedish Retail Institute (HUI))

Abstract

The purpose of this paper is to study, using a comprehensive Swedish panel data set, whether investors are less willing to realize capital gains when the marginal tax rate on capital gains is relatively high. In Sweden capital gains are taxed independently of ordinary income at a flat rate, making it possible to avoid endogenity problems and to include direct measures of capital gains taxation in the empirical analysis. The results indicate that a 10% increase in capital gains tax rate reduces the number of realizations of capital gains with 8.7% and the realized amount, given the decision to realize, with 1.9%. In addition, wealthy individuals seem to respond more to changes in capital gains tax rates than less-wealthy individuals.

Suggested Citation

  • Daunfeldt, Sven-Olov & Praski-Ståhlgren, Ulrika & Rudholm, Niklas, 2007. "Do High Taxes Lock-in Capital Gains? Evidence from a Flat Rate Tax System," HUI Working Papers 6, HUI Research.
    • Handle: RePEc:hhs:huiwps:0006
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    Cited by:

    1. Pietola, Kyosti & Myyra, Sami & Pouta, Eija, 2009. "Fiscal and trade distorting effects of capital gains tax on land sales - empirical evidence from agricultural land market in Finland," Discussion Papers 50040, MTT Agrifood Research Finland.
    2. Kyösti Pietola & Sami Myyrä & Eija Pouta, 2011. "The Effects of Changes in Capital Gains Taxes on Land Sales: Empirical Evidence from Finland," Land Economics, University of Wisconsin Press, vol. 87(4), pages 582-594.

    More about this item

    Keywords

    Capital gains realizations; tax avoidance; panel data;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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