The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates

Ole Agersnap and Owen Zidar

American Economic Review: Insights, 2021, vol. 3, issue 4, 399-416

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 10-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: E62 H25 H71 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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Related works:
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)
Working Paper: The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates (2020)
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DOI: 10.1257/aeri.20200535

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