University of Bamberg
open search form
You are here

Faculty of Social Sciences, Economics, and Business Administration

Institute of Economics

  1.  University of bamberg
  2. Faculties
  3. Social Sciences, Economics and Business Administration
  4. Subjects and Institutes
  5. Institute of Economics
  6. News (German only)
  7. Publication by Roberto Dieci, Laura Gardini and Frank Westerhoff in International Review of Financial Analysis

Publication by Roberto Dieci, Laura Gardini and Frank Westerhoff in International Review of Financial Analysis

 

On the destabilizing nature of capital gains taxes

Roberto Dieci, Laura Gardini and Frank Westerhoff

https://www.sciencedirect.com/science/article/abs/pii/S1057521922002162

Abstract

Policymakers around the world impose some form of capital gains taxes to foster the stability of financial markets. Unfortunately, there is no clarity on the effects of capital gains taxes. Based on a stylized behavioral asset-pricing model highlighting the trading activity of extrapolating speculators, we show that policymakers may involuntary destabilize financial markets by imposing capital gains taxes. Most importantly, we find that the imposition of capital gains taxes may trigger endogenous cyclical asset price dynamics occurring around inflated price levels. A number of robustness checks in which we allow for interactions between speculators who use extrapolative and regressive expectation rules confirm our main results.