Working Paper: NBER ID: w2119
Authors: James M. Poterba
Abstract: This paper uses time-series data to investigate how changes in capital gains tax rates affect taxpayer compliance. It finds that a one percent increase in the marginal tax rate reduces voluntary compliance by between one half and one percent. These results confirm the findings of previous studies based on individual household data. They also suggest that at least one quarter of the observed capital gain realization response to changes in marginal tax rates is due to changes in reporting behavior, rather than portfolio behavior.
Keywords: Tax evasion; Capital gains taxation; Tax compliance
JEL Codes: H26; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| marginal tax rate increase (H29) | voluntary compliance decrease (H26) |
| marginal tax rate change (H29) | reported tax base increase (H29) |
| examination probability increase (C12) | tax compliance increase (H26) |
| marginal tax rate changes (H31) | capital gains realization response (G19) |
| marginal tax rate increase (H29) | reporting behavior change (C92) |