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Retrospective Capital Gains Taxation

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Alan J. Auerbach

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Abstract

This paper presents a new approach to the taxation of capital gains that eliminates the deferral advantage present under current realization-based systems, along with the lock-in effect and tax arbitrage possibilities associated with this deferral advantage. The new approach also taxes capital gains only upon realization but, by effectively charging interest on past gains when realization finally occurs, eliminates the incentive to defer such realization. Unlike a similar scheme suggested previously by Vickrey, the present one does not require knowledge of the potentially unobservable pattern of gains over time. It thus is applicable to a very broad range of capital assets.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2792.

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Date of creation: Sep 1991
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Handle: RePEc:nbr:nberwo:2792

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  1. William Vickrey, 1934. "Averaging of Income for Income-Tax Purposes," Journal of Political Economy, University of Chicago Press, vol. 47, pages 379. [Downloadable!] (restricted)
  2. Green, Jerry R & Sheshinski, Eytan, 1978. "Optimal Capital-Gains Taxation under Limited Information," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1143-58, December. [Downloadable!] (restricted)
  3. Jeremy I. Bulow & Lawrence H. Summers, 1984. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Stiglitz, Joseph E, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, MIT Press, vol. 83(2), pages 263-83, May. [Downloadable!] (restricted)
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  5. Alan J. Auerbach, 1981. "Evaluating the Taxation of Risky Assets," NBER Working Papers 0806, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Sandmo, Agnar, 1985. "The effects of taxation on savings and risk taking," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 5, pages 265-311 Elsevier. [Downloadable!] (restricted)
  7. Gordon, Roger H, 1985. "Taxation of Corporate Capital Income: Tax Revenues versus Tax Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 1-27, February.
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