Scandinavian Working Papers in Economics
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No 6:
Do High Taxes Lock-in Capital Gains? Evidence from a Flat Rate Tax System

Sven-Olov Daunfeldt (), Ulrika Praski-Ståhlgren () and Niklas Rudholm ()

Abstract: The purpose of this paper is to study, using a comprehensive Swedish panel data set, whether investors are less willing to realize capital gains when the marginal tax rate on capital gains is relatively high. In Sweden capital gains are taxed independently of ordinary income at a flat rate, making it possible to avoid endogenity problems and to include direct measures of capital gains taxation in the empirical analysis. The results indicate that a 10% increase in capital gains tax rate reduces the number of realizations of capital gains with 8.7% and the realized amount, given the decision to realize, with 1.9%. In addition, wealthy individuals seem to respond more to changes in capital gains tax rates than less-wealthy individuals.

Keywords: Capital gains realizations; tax avoidance; panel data; (follow links to similar papers)

JEL-Codes: H24; H31; (follow links to similar papers)

25 pages, January 31, 2007

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This paper is published as:
Daunfeldt, Sven-Olov, Ulrika Praski-Ståhlgren and Niklas Rudholm, (2010), 'Do High Taxes Lock-in Capital Gains? Evidence from a Flat Rate Tax System', Public Choice, 145, 25-38, 2010., Vol. 145, October, No. 1, pages 14

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