Center for Economic Research, Department of Economics, University of Minnesota
Despite the widespread belief that taxation upon realization
discourages trade, the study of its macroeconomic effects has been limited
by the lack of general equilibrium models suitable for quantitative analysis
of capital-gains taxation. In this paper I present a variant of the standard
growth model, amended to accommodate a role for asset trading and to
generate capital gains. With a reasonable parameterization and a
judiciously selected realization tax policy, revenues attributable to taxes
on capital-gains in the computed steady-state resemble their counterpart
for the US data. I also ask whether this government policy is a tax on
consumption smoothing. I proceed by studying another steady-state that
attains when gains are taxed upon accrual. I find the answer to be in the
affirmative. Moreover, when compared to a 28 percent realization tax
rate, accrual taxation is capable of raising the same revenue with a tax
rate of just 7.7 percent together with a welfare improvement.
Cavalcanti, R. (1995), "Capital-Gains Taxation in Applied General Equilibrium", Discussion Paper No. 285, Center for Economic Research, Department of Economics, University of Minnesota.
Cavalcanti, Ricardo de O..
Capital-Gains Taxation in Applied General Equilibrium.
Center for Economic Research, Department of Economics, University of Minnesota.
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