Investor Responsiveness to Capital Gains Taxes During the Great Recession

Research Report

Investor Responsiveness to Capital Gains Taxes During the Great Recession

Abstract

This paper uses a large panel of transaction-level capital asset sales data to investigate whether tax responsiveness varies with economic conditions. We estimate the tax elasticity associated with a large notch in the capital gains tax schedule, when the tax treatment changes from higher, ordinary income tax rates to lower, preferential tax rates. We estimate this elasticity for each year from 2007 to 2012. Surprisingly, these elasticities were highest during the throes of the financial panic.
Research Area: 
To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.