The Lock-In Effect of the Capital Gains Tax: Some Time Series Evidence

8 Pages Posted: 16 Jul 2004 Last revised: 16 Sep 2010

See all articles by Joel B. Slemrod

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Martin S. Feldstein

National Bureau of Economic Research (NBER); Harvard University

Date Written: July 1978

Abstract

This study presents time-series evidence indicating that capital gains taxation reduces the realization of capital gains. The "lock-in" effect is detectable once we divide individuals into categories on the basis of how much recent capital gains tax in- creases have affected them. Since the tax law changes, those individeals who are affected have realized significantly ldss capital gains relative to those not affected. This analysis, in `ddition to evidence fpom cross-sectional research reported in Feldstein and Yitzhaki (1978) and Feldstein, Slemrod and Qitzhaki (1978),indicates that estimates of the tax revenue change resulting from a reduction in capital gains taxation based on the assumption of unchanged realized gains may be misleading.

Suggested Citation

Slemrod, Joel B. and Feldstein, Martin S., The Lock-In Effect of the Capital Gains Tax: Some Time Series Evidence (July 1978). NBER Working Paper No. w0257. Available at SSRN: https://ssrn.com/abstract=228063

Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

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Martin S. Feldstein

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