Dynamic Asset Pricing Effects and Incidence of Realization-Based Capital Gains Taxes

Download or read book Dynamic Asset Pricing Effects and Incidence of Realization-Based Capital Gains Taxes written by Alan D. Viard and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Many analyses of capital gains taxation assume that realization-based taxes are economically similar to accrual-based taxes. In equilibrium, however, the distinctive implications of realization taxes for asset trading through the lock-in effect are associated with distinctive dynamic asset pricing effects. Asset prices are increased by the current realization tax, to partly offset the sale disincentive that the tax wouldotherwise impose. The resulting division of the tax burden between buyers and sellers of assets is similar to traditional public finance models of excise-tax incidence in product markets.