Capital Gains Taxation and Tax Avoidance: New Evidence from Panel Data

56 Pages Posted: 20 Jul 2000 Last revised: 1 Jul 2010

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Leonard E. Burman

Tax Policy Center; Maxwell School; Urban Institute; Syracuse University - Center for Policy Research

Jonathan M. Siegel

University of California, Berkeley - Department of Economics

Date Written: February 1998

Abstract

Previous theoretical analyses of the capital gains tax have suggested that investors have considerable opportunity to avoid the tax. Yet, past empirical work has found relatively little evidence of such activity. Using a previously unavailable panel data set with a very large sample of high-income individuals, this paper aims to bring the theory and evidence closer together by examining the behavior of individual taxpayers over time. Though confirming past findings that avoidance of tax on realized capital gains is not prevalent, we do observe that tax avoidance activity increased after the passage of the Tax Reform Act of 1986, and that high-income, high-wealth and more sophisticated taxpayers were most likely to avoid tax. However, the efficacy of tax avoidance strategies depends on being able to avoid tax for long periods, and we find that most tax avoidance is of relatively short duration. Thus, the effective tax rate on realized capital gains is very close to the statutory rate in all years and tax brackets.

Suggested Citation

Auerbach, Alan Jeffrey and Burman, Leonard E. and Siegel, Jonathan M., Capital Gains Taxation and Tax Avoidance: New Evidence from Panel Data (February 1998). NBER Working Paper No. w6399. Available at SSRN: https://ssrn.com/abstract=226147

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Leonard E. Burman

Tax Policy Center ( email )

Urban Institute
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Maxwell School ( email )

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Urban Institute ( email )

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Syracuse University - Center for Policy Research ( email )

Syracuse, NY 13244
United States

Jonathan M. Siegel

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

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