Effects of Taxation: Investments by Individuals

By J. Keith Butters; Lynn L. Bollinger | Go to book overview

CHAPTER VIII
Marketable Common Stock: II

IN THIS chapter the qualitative analysis of Chapter VII is supplemented by an appraisal of the degree to which investors have responded to the tax incentives to hold larger or smaller amounts of their investment assets in marketable common stock. While the effect of the existing tax structure on the investment holdings of individuals cannot be precisely measured, considerable insight into the quantitative impact of the tax structure on investments in marketable common stock can nevertheless be secured.

We shall first examine the evidence available from the active investor sample. Thereafter, the extent to which the conclusions derived from this sample can be applied to investors generally will be briefly discussed, and the limited evidence from other sources as to the effect of taxes on the willingness of individuals to hold marketable common stock will be considered.


EFFECT OF TAXES ON HOLDINGS OF MARKETABLE COMMON
STOCK

As a first step the individuals in the active investor sample were classified into three categories: (1) those who stated that their holdings of marketable common stock were not affected by tax considerations; (2) those who held less in common stock on account of taxes; and (3) those who invested more in common stock because of specific tax inducements. For convenience of reference these three groups will be referred to as the three marketable common stock tax categories, or, where the context is clear, simply as the three "tax categories." The general reasons prompting investors to reduce or increase their holdings of common stock for tax reasons have already

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