The Distribution of Capital Gain on Corporate Shares by Holding Time
IN this essay I apply a method for inferring the age distribution of a stock, where the size of the stock and its turnover rate are known, to estimating the distribution of accrued but unrealized gain on corporate shares by the elapsed time over which the gain has accrued.' Without this distribution, we cannot predict accurately even the revenue effects of a change in the legal definitions of holding periods which qualify capital gains for privileged tax treatment. Going beyond such trivial uses, a knowledge of the distribution enables us to estimate the aggregate interest advantage which holders of appreciating assets enjoy from tax deferment and, therefore, to determine that rate of tax on realizations which reduces the advantage to zero. Incorporating the distribution's generating function into a simulation model along with data on prices, turnover rates, and additions to and subtractions from the stock of shares owned by domestic holders, we could generate annual accruals and realizations of capital gains under alternative interest and tax rates and at least make a start on the objective evaluation of the effects of taxing gains at death or of going over to a strict accrual concept of income for tax purposes.
- DOI
- 10.2307/1924856
- Volume
- 48 (1)
- Pages
- 40
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