The Economic Effects of Taxation

Article excerpt

The NBER held a conference on "The Economic Effects of Taxation" on November 19 and 20 in Cambridge. Organizer James M. Poterba, NBER and MIT, selected the following papers for discussion:

Matthew Eichner, NBER and Columbia University, and Todd M. Sinai, NBER and University of Pennsylvania, "Capital Gains Tax Realizations and Tax Rates: New Evidence from Time Series and Microdata"

Discussant: Alan J. Auerbach, NBER and University of California, Berkeley

Joel M. Dickinson, The Vanguard Group; John B. Shoven, NBER and Stanford University; and Clemens Sialm, Stanford University, "Tax Externalities of Equity Mutual Funds"

Discussant: Douglas A. Shackelford, NBER and University of North Carolina, Chapel Hill

Jerry Hausman, NBER and MIT, "Efficiency Effects on the U.S. Economy from Wireless Taxation" (NBER Working Paper No. 7281)

Discussant: Roger H. Gordon, NBER and University of Michigan

Nada Eissa and Hilary Williamson Hoynes, NBER and University of California, Berkeley, "Explaining the Fall and Rise in the Tax Cost of Marriage: The Effect of Tax Law and Demographic Trends, 1984-97"

Discussant: Bruce D. Meyer, NBER and Northwestern University

Susan Dynarski, NBER and Harvard University, "HOPE for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance"

Discussant: Joel Slemrod, NBER and University of Michigan

David Joulfaian, U.S. Department of the Treasury, "Estate Taxes and Charitable Bequests by the Wealthy"

Discussant: Douglas Holtz-Eakin, NBER and Syracuse University

Daniel R. Feenberg, NBER, and Jonathan S. Skinner, NBER and Dartmouth College, "Medicare Taxes and Expenditures"

Discussant: William Gale, The Brookings Institution

Andrew Mitrusi, NBER, and James M. Poterba, "The Distribution of Payroll and Income Tax Burdens, 1979-99"

Discussant: Harvey S. Rosen, NBER and Princeton University

Using 1986-97 data, Eichner and Sinai update the time-series evidence on the response of capital gains realizations to tax rates. They find evidence that repeated changes in the tax law may reduce the stock of unrealized gains, so that the behavioral response to a series of rate changes may diminish with time. They also find that the increasing role of mutual funds as an investment vehicle, and the resulting transfer of control over realization decisions from investors to fund managers, may have dulled the response of realization to capital gains tax rate changes. Using microdata, they conclude that the high levels of asset sales in 1986 did not reduce the amount of gains realized in 1987. Finally, the authors determine that the capital gains tax rate reductions in the Taxpayer Relief Act of 1997 would have been nearly revenue-neutral without other aggregate changes, but that the Act could generate anywhere from a 10 percent annual loss of capital gains tax receipts to a 10 percent annual gain.

Investors holding mutual funds in taxable accounts face a classic dilemma: the aftertax return on their investment depends on the behavior of others. In particular, redemptions may force the mutual fund to sell some of its equity positions in order to pay off the liquidating investors. As a result, the mutual fund may be forced to distribute realized capital gains to its shareholders. The taxes of investors who stay with the fund are accelerated by the actions of those leaving the fund. On the other hand, new investors have a positive effect on the accounts of existing investors by diluting the unrealized capital gain position of the fund. The simulations that Dickinson, Shoven, and Sialm present show that these factors are important determinants of the aftertax performance of equity mutual funds. Mutual fund managers can significantly influence the magnitude of these factors by choosing tax-efficient accounting techniques and investment policies. …


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.