Capitalization of Capital Gains Taxes:  Evidence from Stock Price Reactions to the 1997 Rate Reduction

Lang, Mark H.; Shackelford, Douglas A.

doi:10.3386/w6885

Cited by 64 publications

(86 citation statements)

References 16 publications

(13 reference statements)

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“…An increase in tax receipts, ceteris paribus, implies lower (future) government borrowing (and less debt) and thus a lower interest rate. This is consistent with evidence of substantial effects of a tax change on share prices as reported by Lang and Shackelford (2000) and Sinai and Gyourko (2004). Alternatively, stock market declines mean lower corporate profits and lower tax revenues, and this might necessitate higher government borrowing, which would place an upward pressure on the interest rate in the future.…”

Section: Disaggregated Deficit Measuressupporting

confidence: 85%

Dynamic Linkages among Budget Deficits, Interest Rates and the Stock Market*

Laopodis

2012

Fiscal Studies

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This paper examines the dynamic linkages among the federal budget deficit, interest rates and the stock market for the United States from 1960 to 2006. The empirical strategy includes vector autoregression (VAR) and Granger causality analyses. The results suggest that budget deficits negatively impact upon stock returns, which implies a violation of the Ricardian Equivalence Proposition. Further analysis shows a higher sensitivity of stock returns to corporate taxes than to public spending. Finally, it is shown that although taxes are relevant for corporate profits in the short run, budget deficits are important for the stock market in the long run.

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Section: Disaggregated Deficit Measuressupporting

confidence: 85%

Dynamic Linkages among Budget Deficits, Interest Rates and the Stock Market*

Laopodis

2012

Fiscal Studies

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“…DHALIWAL, S. HEITZMAN, AND O. Z. LI or event studies surrounding changes in statutory tax rates (e.g., Ayers, Cloyd, and Robinson [2002], Lang and Shackelford [2000]). 3 A closely related paper by Dhaliwal et al [2005] uses ex ante cost of equity estimates implied by accounting-based valuation models to test whether the effect of dividend taxes is capitalized in expected returns.…”

Section: Introductionmentioning

confidence: 99%

Taxes, Leverage, and the Cost of Equity Capital

Dhaliwal

Heitzman

2006

J of Accounting Research

271

138

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We examine the associations among leverage, corporate and investor level taxes, and the firm's implied cost of equity capital. Expanding on Modigliani and Miller [1958, 1963], the cost of equity capital can be expressed as a function of leverage and corporate and investor level taxes. Based on this expression, we predict that the cost of equity is increasing in leverage, and that corporate taxes mitigate this leverage-related risk premium, while the personal tax disadvantage of debt increases this premium. We empirically test these predictions using implied cost of equity estimates and proxies for the firm's corporate tax rate and the personal tax disadvantage of debt. Our results suggest that the equity risk premium associated with leverage is decreasing in the corporate tax benefit from debt. We find some evidence that the equity risk premium from leverage is increasing in the personal tax penalty associated with debt. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2006.

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“…The empirical literature (e.g., Herron, 2000;Lang & Shackelford, 2000;Santa-Clara & Valkanov, 2003;Slemrod & Greimel, 1999) has already established that markets react to changes in the political landscape, particularly elections. Exploiting exogenous changes in prediction markets on Election Day, Snowberg, Wolfers, and Zitzewitz (2007) found that markets across the board reacted strongly to both anticipated and revealed election information.…”

Section: Broader Election Effectmentioning

confidence: 99%

Who Benefits from Targeted Property Tax Relief? Evidence from Virginia Elections

Moulton¹,

Waller²,

Wentland³

2018

J Policy Anal Manage

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This study examines the market impact of targeted property tax relief, which is critical for understanding who exactly benefits from a widely used local policy. Specifically, we investigate this in the context of two statewide ballot measures in Virginia that provided property tax relief or heightened expectations for future relief intended to aid disabled veterans and seniors, respectively. Using residential multiple listing service microdata from Virginia, results from a regression discontinuity analysis show that once the 2010 tax relief measures passed on Election Day, property values rose sharply in response to the sudden increase in demand for homeownership among the targeted groups. We find that senior preferred housing and properties within areas with higher proportions of seniors and veterans experienced the highest price appreciation, while areas with fewer veterans or seniors saw little impact. The findings suggest that this type of policy provides an immediate benefit to current homeowners, thereby offsetting benefits for subsequent homeowners within the targeted groups. This effect represents an unintended consequence of targeted property tax relief as a policy tool more generally, as immediate capitalization into home prices subsequently increases the cost of housing for many individuals the relief was intended to help.

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Capitalization of Capital Gains Taxes: Evidence from Stock Price Reactions to the 1997 Rate Reduction

Cited by 64 publications

References 16 publications

Dynamic Linkages among Budget Deficits, Interest Rates and the Stock Market*

Dynamic Linkages among Budget Deficits, Interest Rates and the Stock Market*

Taxes, Leverage, and the Cost of Equity Capital

Who Benefits from Targeted Property Tax Relief? Evidence from Virginia Elections

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