Tax Collection from Realized Capital Gains on Equity

55 Pages Posted: 1 Apr 2019 Last revised: 25 Jan 2021

See all articles by Paul Ehling

Paul Ehling

BI - Norwegian Business School

Stathis Tompaidis

University of Texas at Austin - McCombs School of Business

Chunyu Yang

BI Norwegian Business School

Date Written: July 1, 2019

Abstract

The tax rate on capital gains of equity securities has varied substantially over time and correlates negatively with realized capital gains and collected taxes. Our model shows that investors who anticipate the dynamics of the capital gains tax rate in their bond-equity mix, realize more gains the higher the realized return on equity, the lower the capital gain tax rate, and the higher the capital loss carried over. We simulate the behavior of a calibrated population of investors at an annual frequency, and find results consistent with data on aggregate capital gains taxes paid. Policymakers can use our model to guide changes in the capital gains tax rate.

Keywords: time-varying capital gains taxation, tax-optimal rebalancing, tax collection from realized capital gains

JEL Classification: G11, H20

Suggested Citation

Ehling, Paul and Tompaidis, Stathis and Yang, Chunyu, Tax Collection from Realized Capital Gains on Equity (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3349058 or http://dx.doi.org/10.2139/ssrn.3349058

Paul Ehling (Contact Author)

BI - Norwegian Business School ( email )

N-0442 Oslo
Norway
+47 46410505 (Phone)

Stathis Tompaidis

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Chunyu Yang

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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