Working Paper: NBER ID: w11756
Authors: Clemens Sialm
Abstract: The effective tax rate on equity securities has fluctuated considerably in the U.S. between 1917-2004. This study investigates whether personal taxes on equity securities are related to stock valuations using the time-series variation in tax burdens. The paper finds an economically and statistically significant relationship between asset valuations and personal tax rates. Consistent with tax capitalization, stock valuations tend to be relatively low when tax burdens are relatively high.
Keywords: Taxation; Asset Pricing; Effective Tax Rates; Stock Valuations
JEL Codes: G12; H20; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher effective tax rates (H29) | lower asset valuations (G19) |
| higher effective tax rates (H29) | higher asset returns (G19) |
| effective tax rates (H29) | price-earnings ratio (G12) |
| higher effective tax rates (H29) | higher before-tax returns (G19) |