Tax Planning by Mutual Funds: Evidence from Changes in the Capital Gains Tax Rate
45 Pages Posted: 25 Aug 1998 Last revised: 14 Sep 2010
Date Written: September 10, 2010
We investigate whether mutual funds engage in tax planning by testing how they respond to changes in the capital gains tax rates. While previous evidence suggests that individual investors time capital gains realizations, mutual fund managers may not tax plan like individuals because fund managers have incentives to consider the tax liability of both current and potential investors. Our analysis spans over forty-four years, and six major tax changes, allowing us to examine the effect of both tax rate increases and decreases. Overall, we find evidence consistent with tax planning by managers of both open-end and closed-end mutual funds.
Keywords: Mutual funds, capital gains, tax planning, income shifting, tax overhang
JEL Classification: M41, G23, H24
Suggested Citation: Suggested Citation