The Effect of the Timing and Direction of Capital Gain Tax Changes on Investment in Risky Assets

Falsetta, Diana; Rupert, Timothy J.; Wright, Alex

doi:10.2308/accr-50319

Cited by 25 publications

(10 citation statements)

References 27 publications

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“…Timing: The timing of tax incentives influences tax perceptions (Chambers & Spencer, 2008;Falsetta, Rupert, & Wright, 2013) when subjects use mental accounts (Thaler, 1990) or hold prospect theoretical utility functions. For example, small and recurrent (larger lump-sum) tax refunds will be assigned to the mental account "current income"…”

Section: D)mentioning

confidence: 99%

“…Risk-taking is also affected by the timing of taxation. Falsetta et al (2013) show that taxpayers invest more (less) in a riskier asset when a tax decrease (increase) is implemented gradually rather than in one go. In a similar vein, Falsetta and Tuttle (2011) find that subjects entitled to claim a tax refund take significantly less investment risk than those who have to pay an additional tax.…”

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confidence: 94%

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Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective

Alm

Blaufus

Fochmann

et al. 2020

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Governments have taken remarkable measures during the SARS-CoV-2 pandemic in their efforts to safeguard citizens' health and the economy. As a consequence, public debts have reached unprecedented levels, which will require at some point higher taxes. Ensuring that citizens pay these taxes requires consideration of the many factors that will likely affect their tax compliance decisions. In this paper, we reflect from a behavioral economic perspective the impact of tax policy measures on the perception, evaluation, and behavior of citizens and derive considerations to devise appropriate tax policies to ensure compliance in the future. We start with speculations about citizens' views of governmental restrictions and economic stimulus measures in response to the crisis, we apply these speculations to the acceptance and perceived effectiveness of policy measures on citizens' tax compliance behaviors, and we finish with their likely impact on determinants of tax compliance. Building on the derived insights, we deduce a set of considerations to improve tax complianceand to generate the necessary tax revenues to deal with the after-effects of SARS-CoV-2 when the pandemic is under control: communication, transparency and justification of measures, access to support, service provision, audits and penalties in case of free-riding, targeted audits, building social norms of cooperation, consideration of framing effects, development of plans and strategies for the future, and anticipation of hindsight biases.

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Section: D)mentioning

confidence: 99%

mentioning

confidence: 94%

Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective

Alm

Blaufus

Fochmann

et al. 2020

View full text Add to dashboard Cite

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“…When the reduction in investor willingness to sell or change their holdings because of increased tax rates reaches a critical threshold, a reduction in stock liquidity becomes inevitable. Falsetta et al (2013) [12] points out a tax reduce shall encourage the taxpayer to increase risky investment while a tax increase shall discourage the taxpayer to decrease risky investment. Therefore capital gains tax for securities shall alter the taxpayer on the investment preference.…”

Section: ) Lock-in Effectmentioning

confidence: 99%

A Study on Lock-In Effect of Capital Gains Tax for Securities in Taiwan Stock Market—An Application of DID Model

2015

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In this study, we applied classical linear regression model and DID model while minimized the effects of international markets to investigate the short-term and long-term lock-in effects following the announcement of the capital gains tax for securities in Taiwan stock market. Capital gains tax was reintroduced in 2013 in Taiwan, with stocks and securities being the main focus of taxation to prioritizing capital gains tax reform to improve the tax system and promote tax fairness. Although the government's primary consideration is generating tax revenue, scholars have long advocated establishing a fair tax system. However, levying a tax on capital gains for securities would affect the stock market, causing investors to become wary of any investments associated with the capital gains tax. The challenge of balancing the interests of different groups has made the capital gains tax for securities difficult to implement. The empirical results showed the evidence that the changes in trading volume of the Taiwan stock market exhibited negative short-term and long-term lock-in effects caused by the capital gains tax for securities as compared with those in Hong Kong's stock market. The lock-in effect on Taiwan's stock trading volume led to a depression in Taiwan's capital market and reduced another key source of tax revenue for the government (the securities transactions tax). The overall impacts of the tax appear to have generated a loss greater than the gain.

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“…Recently, Falsetta, Rupert, and Wright (2013) identify timing as an important tax issue. 4 They use an experiment to examine the effect of timing (gradual versus immediate) and the direction of capital gains tax changes on taxpayer preferences for investments in riskier assets.…”

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confidence: 99%

Can Tax Rate Increases Foster Investment Under Entry and Exit Flexibility? - Insights from an Economic Experiment

2014

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ABSTRACT:It is well-known that taxes affect risky investment decisions. Analytical studies indicate that tax rate increases (decreases) can foster (hinder) investment if there is flexibility, in particular when an exit option is available. We design an experiment based on an analytical model with binomial random walk and entry and exit flexibility. Contrasting the underlying model, we find accelerated investment, which is often considered as an increased willingness to invest, on tax rate increases to be independent of the existence of an exit option. However, we observe this investor reaction only for a tax increase, not for a tax decrease. This behavior is driven possibly by tax salience and the mechanisms known from the theory of irreversible choice under uncertainty. Our empirical evidence suggests that the at-first-sight unexpected tax reform effects are more common than is predicted by the theoretical literature. Policy makers should therefore carefully consider the behavioral aspects when anticipating taxpayer reactions. JEL Classification: H25, H21, C91

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The Effect of the Timing and Direction of Capital Gain Tax Changes on Investment in Risky Assets

Cited by 25 publications

References 27 publications

Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective

Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective

A Study on Lock-In Effect of Capital Gains Tax for Securities in Taiwan Stock Market—An Application of DID Model

Can Tax Rate Increases Foster Investment Under Entry and Exit Flexibility? - Insights from an Economic Experiment

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