The tax elasticity of capital gains and revenue-maximizing rates Ole Agersnap, Owen Zidar
By: Agersnap, Ole
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Contributor(s): Zidar, Owen.
Material type: 
ArticlePublisher: 2021Subject(s): PLUSVALIAS | IMPUESTOS | ELASTICIDAD IMPOSITIVA | ESTADOS UNIDOS
In:
The American Economic Review v. 3, n. 4, December 2021, p. 399-416Summary: This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is –0.5 to –0.3, indicating that capital gains tax cuts do not pay for themselves and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.
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| OP 2145/2021/2-1 Enforcing wealth taxes in the developing world | OP 2145/2021/3 The American Economic Review | OP 2145/2021/4 The American Economic Review | OP 2145/2021/4-1 The tax elasticity of capital gains and revenue-maximizing rates | OP 2145/2022/1 The American Economic Review | OP 2145/2022/1-1 Immigration and entrepreneurship in the United States | OP 2145/2022/2 The American Economic Review |
Resumen.
Bibliografía.
This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is –0.5 to –0.3, indicating that capital gains tax cuts do not pay for themselves and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.
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