Title

The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates

Author(s)

Ole Agersnap Ole Agersnap (Princeton University)

Owen Zidar Owen Zidar (Princeton University, NBER)

Abstract

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 ten-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.

Creation Date

2020-12

Section URL ID

Paper Number

272

URL

https://scholar.princeton.edu/sites/default/files/zidar/files/capgains.pdf

File Function

Jel

D31, H24, H25

Keyword(s)

Suppress

false

Series

3