Experimental evidence of the effect of tax rate uncertainty on security prices, investor clienteles, and tax payments

The effect of tax rate uncertainty on security prices, investor clienteles, and tax revenue is examined. A laboratory market setting is employed where differentially taxed investors invest in 3 differentially taxed riskless securities - fully taxable, partially taxable, and non-taxable. When tax rat...

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Bibliographic Details
Published inThe Journal of the American Taxation Association Vol. 17; no. 1; p. 1
Main Authors Collins, Julie H, Murphy, Daniel P
Format Journal Article
LanguageEnglish
Published Sarasota American Accounting Association 01.04.1995
Subjects
Correlation analysis
Equilibrium
Fiscal policy
Investments
Investors
Laboratories
Statistical analysis
Stock prices
Studies
Tax rates
Tax returns
Tax revenues
Taxation
Uncertainty
United States > US
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Summary:The effect of tax rate uncertainty on security prices, investor clienteles, and tax revenue is examined. A laboratory market setting is employed where differentially taxed investors invest in 3 differentially taxed riskless securities - fully taxable, partially taxable, and non-taxable. When tax rates are certain, prices reflect security tax differences and clienteles develop such that investors minimize their total tax burden. Tax rate uncertainty leads to decreased prices, hence increased returns, for the fully and partially taxable securities as investors demand a premium to hold these risky taxable securities. Tax uncertainty also impedes investor clientele formation and results in increased expected tax payments by investors.
ISSN:0198-9073
1558-8017