The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates
This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level, and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a ten-year period is -0.5 to -0.3, indicating that capital gains tax cuts do not pay for themselves, and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.
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Copy CitationOle Agersnap and Owen M. Zidar, "The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates," NBER Working Paper 27705 (2020), https://doi.org/10.3386/w27705.Download Citation
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Published Versions
Ole Agersnap & Owen Zidar, 2021. "The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates," American Economic Review: Insights, vol 3(4), pages 399-416. citation courtesy of 
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