TY  - JOUR
AU  - Hendershott,Patric H.
AU  - Won,Yunhi
TI  - The Long-Run Impact on Federal Tax Revenues and Capital Allocation of A Cut in the Capital Gains Tax Rate
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2962
PY  - 1989
Y2  - May 1989
UR  - http://www.nber.org/papers/w2962
L1  - http://www.nber.org/papers/w2962.pdf
N1  - Author contact info:
Patric H. Hendershott
Fisher Hall
Ohio State University
2100 Neil Avenue
Columbus, OH 43210
Tel: 218/963-1393
Fax: 218/963-9484
E-Mail: hendershott.2@osu.edu
M2  - featured in NBER digest on 1989-10-01
AB  - Model simulations are run to obtain a range of realistic estimates of the long-run revenue impact of a capital-gains tax-rate cut to a maximum of 15 percent. The basic vehicle for the simulations is a slightly modified version of the Galper-Lucice-Toder (GLT) general equilibrium model. The key behavioral assumptions affecting the estimates are: (1) the portfolio and tangible capital reallocations implicit in the structure of the GLT model, (2) corporate payouts responses based on recent empirical estimates, and (3) illustrative noncorporate recharacterizations of regular income as capital gains. The essential message of this paper is that the strong emphasis in the literation on the realization response to a capital gains tax rate cut has been appropriate. The payout/recharacterization and portfolio redistribution/reallocation effects do not appear to be large. Moreover, the portfolio responses, within the context of the GLT model, act to raise tax revenues (substitution of taxable business capital for tax free household and state and local capital), not lower them as has been conjectured. Thus these responses offset the payout/recharacterization effects, leaving the realization response as basically the total response. Future research could, of course, modify this finding.
ER  -