Working Paper: NBER ID: w28514
Authors: Adam M. Lavecchia; Alisa Tazhitdinova
Abstract: Using panel data on a 20% random sample of Canadian taxpayers, we study behavioral responses to the cancellation of a lifetime capital gains exemption that resulted in increased capital gains taxation for some individuals. The unique setting allows us to distinguish between short-term avoidance responses and permanent responses to capital gains taxes. We show that the exemption did not change the number of taxpayers reporting positive capital gains, and thus unlikely resulted in increased participation in capital markets. However, the exemption cancellation slightly increased capital gains realizations of the existing traders.
Keywords: No keywords provided
JEL Codes: G51; H24; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cancellation of LCGE (D58) | Increase in capital gains realizations in 1994 (H24) |
| Increase in capital gains realizations in 1994 (H24) | Doubling of unconditional realized capital gains of treated tax filers (H31) |
| Cancellation of LCGE (D58) | Short-run increase in capital gains realizations (D25) |
| Short-run increase in capital gains realizations (D25) | Extensive margin and intensive margin responses (E24) |
| Cancellation of LCGE (D58) | Negative elasticity of capital gains realizations with respect to net-of-tax rate in the long run (H32) |
| Short-run elasticity (H32) | Strong positive response to tax changes (H32) |
| Long-run elasticity (H30) | Weaker or negative response to tax changes (H31) |