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Mutual Fund Capital Gain Distributions and the Tax Reform Act of 1997

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  • Plancich, Stephanie

Abstract

This paper studies long- and short-term capital gains distributions around the time of the Tax Reform Act of 1997, which lowered the maximum tax rate on long-term gains. Using a panel of mutual fund data, I find that fund managers appear to tilt their distributions towards the long-term after 1997. This behavior is consistent with the hypothesis that managers are tax-sensitive, and the estimates are robust to the inclusion of fund-level fixed effects and other controls. I also examine fund capital gains patterns in a difference-in-differences framework, comparing actively managed to index funds, to find a lower-bound estimate of funds' response.

Suggested Citation

  • Plancich, Stephanie, 2003. "Mutual Fund Capital Gain Distributions and the Tax Reform Act of 1997," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(1), pages 271-296, March.
    • Handle: RePEc:ntj:journl:v:56:y:2003:i:1:p:271-96
    DOI: 10.17310/ntj.2003.1S.08
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    References listed on IDEAS

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    1. Bergstresser, Daniel & Poterba, James, 2002. "Do after-tax returns affect mutual fund inflows?," Journal of Financial Economics, Elsevier, vol. 63(3), pages 381-414, March.
    2. Joel M. Dickson & John B. Shoven, 1994. "A Stock Index Mutual Fund Without Net Capital Gains Realizations," NBER Working Papers 4717, National Bureau of Economic Research, Inc.
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    Cited by:

    1. 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.
    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. Allison L. Evans, 2008. "Portfolio Manager Ownership and Mutual Fund Performance," Financial Management, Financial Management Association International, vol. 37(3), pages 513-534, September.
    4. Agapova, Anna, 2011. "Conventional mutual index funds versus exchange-traded funds," Journal of Financial Markets, Elsevier, vol. 14(2), pages 323-343, May.

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