IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v19y1991i1p3-21.html
   My bibliography  Save this article

The Long-Run Impact on Federal Tax Revenues and Capital Allocation of a Cut in the Capital Gains Tax Rate

Author

Listed:
  • Patric H. Hendershott

    (Ohio State University)

  • Yunhi Won

    (Ohio State University)

Abstract

Model simulations are run to obtain a range of realistic estimates of the long-run revenue impact of a capital gains tax rate cut to a maximum of 15 percent. The basic vehicle for the simulations is a slightly modified version of the Galper-Lucke-Toder (GLT) general equilibrium model. The key behavioral assumptions affecting the estimates are: (1) the portfolio and tangible capital reallocations implicit in the structure of the GLT model, and (2) household realization and corporate payout responses based on recent empirical estimates. The essential message of this article is that the strong emphasis in the literature on the realization response to a capital gains tax rate cut has been appropriate. The payout and portfolio redistribution/ reallocation effects do not appear to be large. Moreover, the portfolio responses, within the context of the GLT model, act to raise tax revenues (substitution of taxable business capital for untaxed household and state and local capital), not lower them as has been conjectured. Thus these responses offset the payout effects, leaving the realization response as basically the total response. Future research could, of course, modify this finding.

Suggested Citation

  • Patric H. Hendershott & Yunhi Won, 1991. "The Long-Run Impact on Federal Tax Revenues and Capital Allocation of a Cut in the Capital Gains Tax Rate," Public Finance Review, , vol. 19(1), pages 3-21, January.
    • Handle: RePEc:sae:pubfin:v:19:y:1991:i:1:p:3-21
    DOI: 10.1177/109114219101900101
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/109114219101900101
    Download Restriction: no
    File URL: https://libkey.io/10.1177/109114219101900101?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lawrence Lindsey, 1987. "Rates, Realizations, and Revenues of Capital Gains," NBER Chapters, in: Taxes and Capital Formation, pages 17-26, National Bureau of Economic Research, Inc.
    2. Lawrence B. Lindsey, 1986. "Capital Gains: Rates Realizations and Revenues," NBER Working Papers 1893, National Bureau of Economic Research, Inc.
    3. James M. Poterba, 1987. "Tax Policy and Corporate Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 455-516.
    4. Robert N. Horn, 1988. "Analysis," Challenge, Taylor & Francis Journals, vol. 31(4), pages 56-58, July.
    5. Martin Feldstein, 1987. "The Effects of Taxation on Capital Accumulation," NBER Books, National Bureau of Economic Research, Inc, number feld87-1.
    6. Lawrence B. Lindsey, 1987. "Capital Gains Rates, Realizations, and Revenues," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 69-100, National Bureau of Economic Research, Inc.
    7. Lawrence B. Lindsey, 1987. "Capital Gains Taxes Under the Tax Reform Act of 1986: Revenue EstimatesUnder Various Assumptions," NBER Working Papers 2215, National Bureau of Economic Research, Inc.
    8. Alan J. Auerbach, 1988. "Capital Gains Taxation in the United States: Realizations, Revenue, and Rhetoric," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 595-638.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. William T. Bogart & William M. Gentry, 1993. "Capital Gains Taxation and Realizations: Evidence from Interstate Comparisons," NBER Working Papers 4254, National Bureau of Economic Research, Inc.
    2. Stefanie Stantcheva, 2020. "Dynamic Taxation," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 801-831, August.
    3. Adam M. Lavecchia & Alisa Tazhitdinova, 2021. "Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada," Department of Economics Working Papers 2021-04, McMaster University.
    4. Poterba, James M, 1987. "Tax Evasion and Capital Gains Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 234-239, May.
    5. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249, Elsevier.
    6. Klein, Peter, 1998. "The capital gain lock-in effect with short sales constraints," Journal of Banking & Finance, Elsevier, vol. 22(12), pages 1533-1558, December.
    7. Gilligan, Daniel O., 1998. "Farm Size, Productivity, And Economic Efficiency: Accounting For Differences In Efficiency Of Farms By Size In Honduras," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20918, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Pierre-Pascal Gendron, 1996. "Corporation Tax Asymmetries: An Oligopolistic Supergame Analysis," Working Papers ecpap-96-04, University of Toronto, Department of Economics.
    9. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-1383, September.
    10. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
    11. García, V.J. & Gómez-Déniz, E. & Vázquez-Polo, F.J., 2010. "A new skew generalization of the normal distribution: Properties and applications," Computational Statistics & Data Analysis, Elsevier, vol. 54(8), pages 2021-2034, August.
    12. Bartels, Charlotte, 2019. "Top Incomes in Germany, 1871–2014," The Journal of Economic History, Cambridge University Press, vol. 79(3), pages 669-707, September.
    13. Schneider, Georg & Sureth, Caren, 2010. "The impact of profit taxation on capitalized investment with options to delay and divest," arqus Discussion Papers in Quantitative Tax Research 97, arqus - Arbeitskreis Quantitative Steuerlehre.
    14. Clemens Sialm & Hanjiang Zhang, 2020. "Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 75(2), pages 735-777, April.
    15. Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.
    16. N. Gregory Mankiw & James M. Poterba, 1996. "Stock Market Yields and the Pricing of Municipal Bonds," NBER Working Papers 5607, National Bureau of Economic Research, Inc.
    17. Thomas Piketty & Emmanuel Saez & Stefanie Stantcheva, 2014. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 230-271, February.
    18. Susanto Basu & John Fernald, 2001. "Why Is Productivity Procyclical? Why Do We Care?," NBER Chapters, in: New Developments in Productivity Analysis, pages 225-302, National Bureau of Economic Research, Inc.
    19. Gavin, William T. & Kydland, Finn E. & Pakko, Michael R., 2007. "Monetary policy, taxes, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1587-1611, September.
    20. Kim, C.S. & Hallahan, Charles B. & Schaible, Glenn D. & Leath, Mack N., 2000. "A Decomposed Regression Model For Measuring Structural Changes In The Flour Milling Industry," 2000 Annual meeting, July 30-August 2, Tampa, FL 21834, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:19:y:1991:i:1:p:3-21. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.