THE EFFECT OF MARGINAL TAX RATES ON CAPITAL GAINS REVENUE - ANOTHER LOOK AT THE EVIDENCE

Much attention has been given to whether a cut in the capital gains tax rate would, in the long run, increase or decrease tax revenues. This paper advances previous work by presenting consistent definitions of responsiveness of revenue to tax changes, implementing a new and more appropriate econometric procedure for analyzing the data, and presenting post TRA 1986 data. No definitive conclusions are found, but the weight of the evidence does not suggest that a reduction in the capital gains rate from existing levels would decrease tax revenue.