The Asset Price Incidence of Capital Gains Taxes: Evidence from the Taxpayer Relief Act of 1997 and Publicly-Traded Real Estate Firms / Todd Sinai, Joseph Gyourko.

Format:

Book

Author/Creator:

Sinai, Todd.

Contributor:

National Bureau of Economic Research.

Gyourko, Joseph.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7893.

NBER working paper series no. w7893

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Asset Price Incidence of Capital Gains Taxes

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

We provide new evidence that corporate-level investment subsidies can be substantially capitalized into asset prices by examining the relative stock price performance of publicly traded companies in the real estate industry that should have been differentially affected by the capital gains tax rate reduction enacted in the Taxpayer Relief Act of 1997. By comparing real estate firms that have an organizational structure that allow property sellers to defer capital gains taxes and plan to use it to acquire property with those that do not, we isolate the effect of the tax cut from industry trends and firm-level heterogeneity. When we examine the time period surrounding the reduction in the capital gains tax rate, our results suggest the tax change was substantially capitalized into lower share prices for these firms and that the benefit of the seller's capital gains tax deferral accrued mainly to the buyer of an appreciated property. The validity of our estimation strategy is supported by further tests showing that these firms did not experience any relative movement in share prices during the previous year when capital gains tax rates did not change.

Notes:

Print version record

September 2000.