Capital Gains Taxes and the Realization of Capital Gains and Losses - Evidence from German Income Tax Data

FinanzArchiv / Public Finance Analysis, Volume 69, Issue 1, 2013, pp. 30-56

26 Pages Posted: 4 Oct 2009 Last revised: 3 Apr 2013

See all articles by Martin Jacob

Martin Jacob

WHU - Otto Beisheim School of Management

Date Written: July 4, 2012

Abstract

This paper analyzes the impact of capital gains taxation on the decision to realize capital gains and losses when gains are tax-exempt after a certain holding period. Theory predicts that high marginal tax rates incentivize investors to realize taxable losses. In contrast, the propensity to realize taxable short-term capital gains decreases in the marginal tax rate. Using two stratified 10% random samples of all German income tax declarations filed in 2001 and 2004, the paper provides robust evidence for this prediction. The marginal tax rate has a significant and positive (negative) impact on the investor's propensity to realize capital losses (gains).

Keywords: Capital Gains Tax, Capital Losses, Income Tax, Investment Decisions, Lock-In Effect, Speculation Gains, Tax Clienteles

JEL Classification: H21, H24, H25

Suggested Citation

Jacob, Martin, Capital Gains Taxes and the Realization of Capital Gains and Losses - Evidence from German Income Tax Data (July 4, 2012). FinanzArchiv / Public Finance Analysis, Volume 69, Issue 1, 2013, pp. 30-56, Available at SSRN: https://ssrn.com/abstract=1474862 or http://dx.doi.org/10.2139/ssrn.1474862

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

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