The taxation of capital gains: principles, practice, and directions for reform

Arun Advani

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: Capital gains are particularly complex to tax given their infrequency, the different ways in which they are generated, and worries about harming productivity. There are theoretical arguments in support of everything from zero rates to high rates of tax on capital. In this paper, I first discuss the impact of capital gains on inequality, which often motivates discussions about how gains should be taxed. I then set out the principles that determine how gains should be taxed, in particular how the tax rate should relate to income tax rates. I propose that capital gains tax rates be equalized with income tax rates, subject to provisions to allow gains to be ‘smoothed’ over time and to remove inflation from the tax base. I highlight key transitional issues in moving to such a tax structure. Finally, I discuss the specific lessons for Canada.

Keywords: JEL Classification: R12; C18; C59 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The taxation of capital gains: principles, practice, and directions for reform (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:589

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