Cross-base tax elasticity of capital gains

Martin Jacob

Applied Economics, 2016, vol. 48, issue 28, 2611-2624

Abstract: This paper studies the cross-base tax elasticity of capital gains realizations to labour income taxes when capital gains are taxed at a separate proportional tax rate. Using a longitudinal panel of over 265 000 individuals in Sweden, this paper shows in a regression kink design that labour income taxes affect capital gains realizations in two ways. An increase in the marginal labour income tax rate increases the likelihood of realizing capital gains and the amount of realized capital gains. One implication of this result is that labour income taxes have a lock-out effect but that the magnitude of this effect is smaller than the lock-in effect of the actual capital gains tax.

Date: 2016
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DOI: 10.1080/00036846.2015.1125438

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