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New Evidence on the Tax Elasticity of Capital Gains: Working Paper 2012-09

Author

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  • Tim Dowd
  • Robert McClelland
  • Athiphat Muthitacharoen

Abstract

This study uses a large panel of tax returns from 1999 to 2008 to investigate how taxes affect the decision to realize gains. The study distinguishes the persistent effect of tax changes from the transitory effect. Similar to earlier studies in the literature, we use the generalized Tobit model to address the sample selection problem and the endogeneity problem in the tax variables, but we improve the identification of the tax elasticity by using the presence of carryover loss as an exclusion restriction. We also control for the financial sophistication of taxpayers because

Suggested Citation

  • Tim Dowd & Robert McClelland & Athiphat Muthitacharoen, 2012. "New Evidence on the Tax Elasticity of Capital Gains: Working Paper 2012-09," Working Papers 43334, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:43334
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    File URL: https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/workingpaper/43334-taxelasticitycapgains.pdf
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    References listed on IDEAS

    as
    1. Lee, Lung-fei & Maddala, G S & Trost, R P, 1980. "Asymptotic Covariance Matrices of Two-Stage Probit and Two-Stage Tobit Methods for Simultaneous Equations Models with Selectivity," Econometrica, Econometric Society, vol. 48(2), pages 491-503, March.
    2. Martin Feldstein & Joel Slemrod & Shlomo Yitzhaki, 1980. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(4), pages 777-791.
    3. Jon Bakija, 2006. "Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program," Department of Economics Working Papers 2006-02, Department of Economics, Williams College, revised Aug 2009.
    4. Gerald E. Auten & Joseph J. Cordes, 1991. "Policy Watch: Cutting Capital Gains Taxes," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 181-192, Winter.
    5. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
    6. Joseph J. Minarik, 1984. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains: Comment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(1), pages 93-110.
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    Cited by:

    1. Stefanie Stantcheva, 2020. "Dynamic Taxation," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 801-831, August.
    2. Dowd, Tim & McClelland, Robert & Muthitacharoen, Athiphat, 2012. "Heterogeneity in the Tax Responses of Personal Capital Gains Realizations," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(4), pages 827-840, December.
    3. Leonard E. Burman, 2012. "Testimony presented before the House Committee on Ways and Means and the Senate Committee on Finance entitled “Tax Reform and the Tax Treatment of Capital Gains"," Center for Policy Research Working Papers 144, Center for Policy Research, Maxwell School, Syracuse University.

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