Tax Regimes and Capital Gains Realizations

European Accounting Review, Forthcoming

43 Pages Posted: 30 Apr 2011 Last revised: 21 Sep 2016

See all articles by Martin Jacob

Martin Jacob

University of Navarra, IESE Business School

Date Written: June 15, 2016


This paper contrasts the individual capital gains realization behavior between progressive and proportional tax regimes. Using a longitudinal panel of over 288,000 individuals in Sweden, I exploit the 1991 tax reform in Sweden that changed progressive capital gains tax rates ranging from 12% to 80% to a proportional tax rate of 30%. Using the proportional tax system to control for non-tax reasons to realize capital gains, I show that individuals are highly responsive to capital gains tax incentives created by temporary income changes under a progressive capital gains tax. More specifically, I find that individuals with temporary negative (positive) income changes sell (hold) shares that they would hold (sell) in the absence of temporary tax incentives. Further, I show that high-income individuals are more tax sensitive than low-income individuals. This result indicates that low-income individuals facing temporary negative income changes could trade predominantly for non-tax reasons.

Keywords: Capital Gains Tax, Proportional Tax, Progressive Tax, Top Incomes

JEL Classification: H20, H24, D14, D31

Suggested Citation

Jacob, Martin, Tax Regimes and Capital Gains Realizations (June 15, 2016). European Accounting Review, Forthcoming, Available at SSRN: or

Martin Jacob (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034

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