Measurements of Effective Tax Rates on Interest Income, Dividends and Capital Gains Income from Stock (in Japanese)

Shizuka Sekita

Economic Analysis, 2009, vol. 182, 109-127

Abstract: This paper measures the effective tax rates of three types of capital income (interest income, dividends and capital gains income from stock) and two types of financial assets (deposit and stock) and discuss which type of capital income and financial asset is tax-favored. I found that the effective tax rate on dividends is always higher than that on interest income during 1973-2003. I also found that if rate of capital gains is low and holding period of stock is short, the effective tax rate on capital gains from stock is higher than that on dividends, but if rate of capital gains is higher than 5 percent and holding period is longer than 5 years, the effective tax rate on capital gains from stock is the lowest among three types of capital income, regardless of inflation rate and year. In addition, if rate of capital gain is 1 percent (18 percent), the effective tax rate on stock is higher (lower) than that on deposit, and if rate of capital gain is 5 percent, the effective tax rates on stock and deposit are relatively similar. Conducting the simulation, I found that under 2011 tax rule, if rate of capital gains is high and holding period of stock is long, the effective tax rates on capital gains from stock is dramatically low, comparing to the effective tax rates on interest income and dividends. Moreover, the effective tax rate on stock is lower than that on deposit in most cases.

Date: 2009
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