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Permanent Versus Transitory Tax Effects and the Realization of Capital Gains

Gerald E. Auten¹; Charles T. Clotfelter²

¹ Bowling Green State University · ² Duke University

Recent empirical work on captial gains implies that realizations are highly sensitive to marginal tax rates. Because they are based on cross-section data, however, these estimates cannot distinguish between permanent responses to tax rate changes and the timing of realizations to take advantage of the normal fluctuations in any individual's tax rates over time. The purpose of this paper is to distinguish transitory from permanent tax effects by analyzing panel data for taxpayers. Controlling for permanent and transitory income and other variables, the estimates suggest both transitory and permanent effects, although the permanent tax rate effect is not significant in all cases.

DOI

10.2307/1885102

Volume

97 (4)

Pages

613

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Sources

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