The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates

Ole Agersnap and Owen Zidar

No 27705, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: H0 H2 H21 H24 H71 R5 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-pbe and nep-pub
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Published as 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.

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Related works:
Journal Article: The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates (2021)
Working Paper: The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates (2021)
Working Paper: The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates (2020)
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