Does Differential Taxation of Short-Term Relative to Long-Term Capital Gains Affect Long-Term Investment?

58 Pages Posted: 16 May 2019 Last revised: 11 Jun 2020

See all articles by Eric He

Eric He

Duke University - Fuqua School of Business

Martin Jacob

WHU - Otto Beisheim School of Management

Rahul Vashishtha

Duke University

Mohan Venkatachalam

Duke University - Fuqua School of Business

Date Written: June 8, 2020

Abstract

Pressure from short-horizon investors can hurt investments in innovative, long-run value increasing projects. We explore the efficacy of a commonly proposed tax-based policy tool to mitigate this problem: imposition of differentially greater taxes on short-term capital gains vis-à-vis long-term capital gains. Using a panel of 30 OECD countries and 21 capital gains tax shocks over 1991-2006, we find that rewarding longer-term ownership through lower capital gains taxes results in an increase in corporate innovation. The evidence should be of interest to lawmakers and regulators and also adds to our understanding of the real effects of taxation of investor trading activity.

Keywords: capital gains taxes, real effects, myopia, investment, short termism, innovation

JEL Classification: G38, H20, H24, O31

Suggested Citation

He, Eric and Jacob, Martin and Vashishtha, Rahul and Venkatachalam, Mohan, Does Differential Taxation of Short-Term Relative to Long-Term Capital Gains Affect Long-Term Investment? (June 8, 2020). Available at SSRN: https://ssrn.com/abstract=3383649 or http://dx.doi.org/10.2139/ssrn.3383649

Eric He

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

HOME PAGE: http://eriche.net

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Rahul Vashishtha (Contact Author)

Duke University ( email )

Durham, NC 27708-0204
United States
919-660-7755 (Phone)
91-660-7971 (Fax)

Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
138
Abstract Views
2,007
rank
232,829
PlumX Metrics