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Effects of Capital Gains Taxation on Life‐Cycle Investment and Portfolio Management
Author(s) -
BALCER YVES,
JUDD KENNETH L.
Publication year - 1987
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1987.tb04583.x
Subject(s) - economics , monetary economics , accrual , cost of capital , capital (architecture) , capital income , debt , international taxation , tax reform , finance , microeconomics , public economics , profit (economics) , earnings , archaeology , history
We examine the impact of capital income taxation, both accrual forms of taxation and taxation of realized capital gains, on total savings and the demand for corporate financial instruments. We find that investors may hold both debt and equity in the face of effective collection of capital gains taxation even in a flat tax system. We also find that the two taxes will have substantially different effects on saving and consumption behavior, making it unlikely that the tax structure can be summarized by any single equivalent accrual tax rate.