Capital Gains Taxation in an Economy with an ‘Austrian Sector’

Authors

Dan Kovenock, Chapman UniversityFollow
Michael Rothschild, University of WisconsinFollow

Document Type

Article

Publication Date

1983

Abstract

This paper examines the effects of a proportional capital gains in an economy with an Austrian sector (with wine and trees) and an ordinary sector. We analyze the effect of capital gains taxation (on both an accrual and a realization basis) on the efficiency with which resources are used within the Austrian sector. Since time is the only input which can be varied in the Austrian sector, this amounts to looking at the effect of capital gains taxation on the harvesting time or selling time of assets. Accrual taxation decreases the selling time of Austrian assets. Realization taxation decreases the selling time of some Austrian assets and leaves it unchanged for others. Inflation further reduces the selling time of assets taxed on an accrual basis; often, but not always, inflation increases the selling time of Austrian assets taxed on a realization basis. We also examine the effect of the special tax treatment of capital gains at death and find that the current U.S. tax system, under which capital gains taxes are waived at death, encourages investors to hold assets longer.

Comments

NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Public Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Public Economics, volume 21, issue 2, in 1983. DOI: 10.1016/0047-2727(83)90050-6

The Creative Commons license below applies only to this version of the article.

Recommended Citation

Kovenock, Daniel J., and Michael Rothschild. "Capital gains taxation in an economy with an ‘Austrian sector’." Journal of Public Economics 21.2 (1983): 215-256.
DOI:10.1016/0047-2727(83)90050-6

Peer Reviewed

1

Copyright

Elsevier

Creative Commons License

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.