Capital Gains Taxation and Tax Avoidance: New Evidence from Panel Data

Alan Auerbach, Leonard E. Burman and Jonathan Siegel ()

No 6399, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous theoretical analyses of the capital gains tax have suggested that investors have considerable opportunity to avoid the tax. Yet, past empirical work has found relatively little evidence of such activity. Using a previously unavailable panel data set with a very large sample of high-income individuals, this paper aims to bring the theory and evidence closer together by examining the behavior of individual taxpayers over time. Though confirming past findings that avoidance of tax on realized capital gains is not prevalent, we do observe that tax avoidance activity increased after the passage of the Tax Reform Act of 1986, and that high-income, high-wealth and more sophisticated taxpayers were most likely to avoid tax. However, the efficacy of tax avoidance strategies depends on being able to avoid tax for long periods, and we find that most tax avoidance is of relatively short duration. Thus, the effective tax rate on realized capital gains is very close to the statutory rate in all years and tax brackets.

JEL-codes: H24 H31 (search for similar items in EconPapers)
Date: 1998-02
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Published as Slemrod, J. (ed.) Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Cambridge: Harvard University Press, 2002.

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