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

Adam Lavecchia () and Alisa Tazhitdinova

No 28514, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G51 H24 H31 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-ore and nep-pbe
Note: PE
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Working Paper: Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada (2021) Downloads
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