Measuring Permanent Responses to Captial Gains Tax Changes in Panel Data

摘要

This paper uses panel data and information about differences in state tax ratesto separate the effects of transitory and permanent tax rate changes on capital gains realizations behavior. The effect of permanent change is found to be substantially smaller than the effect of transitory change. The estimated difference is even larger than past differences between estimates from careful micro data studies, which have primarily measured the transitory effect, and time series studies, which have primarily measured (at best) the permanent effect. Our results thus resolve a longstanding conflict between micro data and time series studies of how marginal tax rates affect capital gains realizations behavior.