Capital Gains Taxes and the Realization of Capital Gains and Losses — Evidence from German Income Tax Data - 10.1628/001522113X663460 - Mohr Siebeck
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Martin Jacob

Capital Gains Taxes and the Realization of Capital Gains and Losses — Evidence from German Income Tax Data

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Jahrgang 69 () / Heft 1, S. 30-56 (27)

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This paper analyzes the influence of capital gains taxation on the decision to realize capital gains and losses when gains are tax-exempt after a certain holding period. Theory predicts that high marginal tax rates incentivize investors to realize taxable losses. In contrast, the propensity to realize taxable short-term capital gains decreases in the marginal tax rate. Using two stratified 10% random samples of all German income tax declarations filed in 2001 and 2004, the paper provides robust evidence for this prediction. The marginal tax rate has a significant and positive (negative) effect on the investor's propensity to realize capital losses (gains).
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