Working Paper Revision
Capital Gains Taxation and Investment Dynamics
Abstract: This paper quantifies the long-run effects of reducing capital gains taxes on aggregate investment. We develop a dynamic general equilibrium model with heterogeneous firms, which face discrete capital gains tax rates based on firm size. We calibrate our model by targeting micro moments and a difference-in-differences estimate of the capital stock response based on the institutional setting and policy reform in Korea. We find that the reform that reduced the capital gains tax rates for a subset of firms substantially increased investment in the short run, and capturing general equilibrium price responses is important to quantify the long-run aggregate outcomes.
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2019-12-12
Note: On July 29, 2020, this paper was redacted from the Federal Reserve Bank of St. Louis Working Paper Series.
- Working Paper Revision: Capital Gains Taxation and Investment Dynamics