Household Debt and Capital Gains Taxation

25 Pages Posted: 25 Sep 2014 Last revised: 10 Apr 2015

See all articles by David Joulfaian

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA); Georgetown University - Department of Economics

Date Written: December 30, 2014

Abstract

By borrowing against their appreciated assets, individuals are able to postpone realizing capital gains and defer paying taxes to a later date, or avoiding them altogether if the assets are held until death. While the effects of capital gains taxes on investment incentives are well studied, there is very little in the way of evidence in the literature to support the proposition that taxes on realized capital gains lead to greater borrowing. This paper employs pooled samples of estate tax returns spanning 25 years to gauge how leverage varies with capital gains taxes. The data is ideally suited to measuring debt held by the well off elderly. The findings suggest that the debt ratio rises with capital gains tax rates, and add another dimension to the dynamics of household debt in the US.

Keywords: debt, capital gains taxes, step-up in basis

JEL Classification: D12, D14, H24, H31

Suggested Citation

Joulfaian, David, Household Debt and Capital Gains Taxation (December 30, 2014). Available at SSRN: https://ssrn.com/abstract=2500993 or http://dx.doi.org/10.2139/ssrn.2500993

David Joulfaian (Contact Author)

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Georgetown University - Department of Economics ( email )

37th St NW & O St NW
Washington, DC 20007
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
72
Abstract Views
612
rank
326,968
PlumX Metrics