Progressivity of Capital Gains Taxation with Optimal Portfolio Selection
We provide new data on capital gains realizations using a five-year stratified panel of taxpayers covering 1985-1989. We find, as earlier studies have, that capital gains realizations are very concentrated among the highest income groups. We use these data and data from the Federal Reserve Board Survey of Consumer Finances to draw inferences from a simulation model of the effects on progressivity and efficiency of alternative tax treatment of capital gains. Tax payments alone are not an accurate indication of the burden of a tax. Taxes generally create costs beyond the dollar value collected by causing persons to change their behavior to avoid the tax. Risk is also affected by the tax system. Beneficial risk-sharing characteristics of the tax system are frequently overlooked when examining the treatment of capital gains, We find that reforms comprising reductions in the capital gains tax rate offset by increases in the tax rate on other investment income are efficiency reducing. Surprisingly, we find that for taxpayers for whom loss limits are not binding a switch to accrual taxation is also efficiency reducing. For those taxpayers for whom loss limits are potentially binding, we find that large efficiency gains can be achieved by increasing the amount of capital losses that may be deducted against ordinary income. These results are partly attributable to changes in risk-sharing encompassed in these reforms.
|Date of creation:||Jan 1993|
|Date of revision:|
|Publication status:||published as Slemrod, Joel (ed.) Tax progressivity and income inequality. Cambridge; New York and Melbourne: Cambridge University Press, 1994.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kandel, Shmuel & Stambaugh, Robert F., 1991.
"Asset returns and intertemporal preferences,"
Journal of Monetary Economics,
Elsevier, vol. 27(1), pages 39-71, February.
- James M. Poterba, 1986.
"How Burdensome Are Capital Gains Taxes?,"
410, Massachusetts Institute of Technology (MIT), Department of Economics.
- Gordon, Roger H. & Varian, Hal R., 1988.
"Intergenerational risk sharing,"
Journal of Public Economics,
Elsevier, vol. 37(2), pages 185-202, November.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
- Constantinides, George M., 1984.
"Optimal stock trading with personal taxes : Implications for prices and the abnormal January returns,"
Journal of Financial Economics,
Elsevier, vol. 13(1), pages 65-89, March.
- George M. Constantinides, 1983. "Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns," NBER Working Papers 1176, National Bureau of Economic Research, Inc.
- Auerbach, Alan J, 1992.
"On the Design and Reform of Capital-Gains Taxation,"
American Economic Review,
American Economic Association, vol. 82(2), pages 263-67, May.
- Alan J. Auerbach, 1992. "On the Design and Reform of Capital Gains Taxation," NBER Working Papers 3967, National Bureau of Economic Research, Inc.
- Hendershott, Patric H. & Toder, Eric J. & Won, Yunhi, 1991. "Effects of Capital Gains Taxes on Revenue and Economic Efficiency," National Tax Journal, National Tax Association, vol. 44(1), pages 21-40, March.
- Joseph E. Stiglitz, 1983.
"Some Aspects of the Taxation of Capital Gains,"
NBER Working Papers
1094, National Bureau of Economic Research, Inc.
- Shaw, Kathryn L, 1996. "An Empirical Analysis of Risk Aversion and Income Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 626-53, October.
- Joel Slemrod, 1992.
"Taxation and Inequality: A Time-Exposure Perspective,"
NBER Working Papers
3999, National Bureau of Economic Research, Inc.
- Joel B. Slemrod, 1992. "Taxation and Inequality: A Time-Exposure Perspective," NBER Chapters, in: Tax Policy and the Economy, Volume 6, pages 105-128 National Bureau of Economic Research, Inc.
- Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
- Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
- Segal, Uzi & Spivak, Avia, 1990.
"First order versus second order risk aversion,"
Journal of Economic Theory,
Elsevier, vol. 51(1), pages 111-125, June.
- Joel B. Slemrod, 1983.
"A General Equilibrium Model of Taxation with Endogenous Financial Behavior,"
in: Behavioral Simulation Methods in Tax Policy Analysis, pages 427-458
National Bureau of Economic Research, Inc.
- Joel Slemrod, 1981. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior," NBER Working Papers 0799, National Bureau of Economic Research, Inc.
- Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, vol. 14(3), pages 365-374, December.
- Miles S. Kimball, 1991.
"Standard Risk Aversion,"
NBER Technical Working Papers
0099, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4253. 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 references are entirely missing, you can add them using this form.