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Investment Taxes and Equity Returns

  • Clemens Sialm

This paper investigates whether investors are compensated for the tax burden of equity securities. Effective tax rates on equity securities vary due to frequent tax reforms and due to persistent differences in propensities to pay dividends. The paper finds an economically and statistically significant relationship between risk-adjusted stock returns and effective personal tax rates using a new data set covering tax burdens on a cross-section of equity securities between 1927 and 2004. Consistent with tax capitalization, stocks facing higher effective tax rates tend to compensate taxable investors by generating higher before-tax returns.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12146.

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Date of creation: Apr 2006
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Handle: RePEc:nbr:nberwo:12146
Note: AP CF PE
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