The impact of different capital gains tax regimes on the lock-in effect and new risky investment decisions
Article Abstract:
Researchers have hypothesized that US capital tax gain laws create a lock-in effect that discourages risky investments because the tax comes due when appreciated assets are sold. A laboratory experiment involving 64 investors was conducted to assess the link between five capital gains tax regimes, the lock-in effect, and risky investment decisions. The tax regimes were ones in which capital gains were taxed at: ordinary rates upon asset sale; preferential rates upon asset sale; ordinary rates plus interest on deferred tax upon asset sale; ordinary rates upon asset appreciation; and ordinary rates when asset proceeds were not reinvested. Research results indicate that the hypothesis was validated in cases where investors were charged capital gains tax at time of asset sale. Results also demonstrate that investors invested more in risky investments when they were taxed on appreciation of asset value or reinvestment of sales proceeds.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1990
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The relation between firm size and effective tax rates: a test of firms' political success
Article Abstract:
Corporations' success in the political process has been hypothesized to be represented by their effective tax rate, the ratio of tax paid to a measure of income, in previous research. Corporations' success in the political process is assumed to generate tax breaks, tax credits, and exclusions from taxable income. A path model with two structural equations was used to assess the effect of net operating losses on the relationship between firm size and tax rates. The results of the model indicate that previous research measuring political success of corporations has been in error since it did not contain a factor, net operating loss, that is rooted not in the success of the political process but in the corporation's experience and operating results.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1991
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