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Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada

Adam Lavecchia () and Alisa Tazhitdinova

Department of Economics Working Papers from McMaster University

Abstract: Using panel data on a 20% random sample of Canadian taxpayers, we study behavioral responses to the cancellation of a lifetime capital gains exemption that resulted in increased capital gains taxation for some individuals. The unique setting allows us to distinguish between short-term avoidance responses and permanent responses to capital gains taxes. We show that the exemption did not change the number of taxpayers reporting positive capital gains, and thus unlikely resulted in increased participation in capital markets. However, the exemption cancellation slightly increased capital gains realizations of the existing traders.

Keywords: capital gains tax; real responses; avoidance; re-timing (search for similar items in EconPapers)
JEL-codes: G51 H24 H31 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2021-02
New Economics Papers: this item is included in nep-pbe
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http://socialsciences.mcmaster.ca/econ/rsrch/papers/archive/2021-04.pdf (application/pdf)

Related works:
Working Paper: Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada (2021) Downloads
Working Paper: Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada (2021) Downloads
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