Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada

91 Pages Posted: 9 Mar 2021 Last revised: 16 Jan 2024

See all articles by Adam Lavecchia

Adam Lavecchia

McMaster University; IZA Institute of Labor Economics

Alisa Tazhitdinova

University of California, Santa Barbara (UCSB)

Multiple version iconThere are 5 versions of this paper

Date Written: Dec 11, 2021

Abstract

Using panel data on a 20% random sample of Canadian taxpayers, we study behavioral responses to the cancellation of a lifetime capital gains exemption that resulted in increased capital gains taxation for some individuals. We show that the exemption did not change the number of taxpayers reporting positive capital gains, and thus unlikely resulted in increased participation in capital markets. Furthermore, our results suggest that the cancellation increased the long-run capital gains realizations of tax filers with more unused exemption room but had a small, statistically insignificant impact on the capital gains realizations of those with little unused exemption room.

Keywords: JEL Classification: H24, H31, G51 capital gains tax, real responses, avoidance, re-timing

JEL Classification: H24, H31, G51

Suggested Citation

Lavecchia, Adam and Tazhitdinova, Alisa, Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada (Dec 11, 2021). Available at SSRN: https://ssrn.com/abstract=3764126 or http://dx.doi.org/10.2139/ssrn.3764126

Adam Lavecchia

McMaster University ( email )

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Hamilton, Ontario L8S 4M4
Canada
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IZA Institute of Labor Economics ( email )

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Bonn, D-53072
Germany

Alisa Tazhitdinova (Contact Author)

University of California, Santa Barbara (UCSB) ( email )

South Hall 5504
Santa Barbara, CA 93106
United States

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