NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by William Shobe

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Working Papers

January 1990The Tax Elasticity of Capital Gains Realizations: Evidence from a Panel of Taxpayers
with Joel Slemrod: w3237
This paper examines a newly available six-year panel of tax return data to see what light it sheds on the tax elasticity of capital gains realizations. Panel data are a particularly valuable source of evidence for this question, because they can help to distinguish short-run from long-run effects and because they track the behavior of individuals when faced with varying tax systems. We find consistent, although not overwhelming, support for an inverse response of capital gains realizations to changes in their rate of taxation. The response to deviations from past tax rates generally exceeds the response to persistent tax changes. The estimated magnitude of the realization response is large enough to substantially mitigate the revenue loss that a tax reduction would otherwise cause and may,...

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