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This paper studies the cross-base tax elasticity of capital gains realizations to labor income taxes when capital gains are taxed at a separate proportional tax rate. Using a longitudinal panel of over 265,000 individuals in Sweden, this paper shows in a regression kink design that labor income taxes affect capital gains at the extensive and intensive margins. An increase in the marginal labor income tax rate increases the likelihood of realizing capital gains and the amount of realized capital gains. One implication of this result is that the excess burden of labor income taxation is affected by cross-base tax elasticities.
We study the importance of owner wages and dividends as alternative payout channels in privately held firms. Using data on all Swedish closely held corporations and their owner–managers over the period 2000–2009, we find that dividends comprise one-fourth of total payout to owner–managers. Dividends are used as a flexible payout channel. Wages are the preferred payout channel and are rather sticky. Choice of payout channel and level of payout are affected by dividend and wage taxation. Consistent with the difference in flexibility across payout channels, shareholder taxes have a stronger impact on dividends than on wages.
This paper analyzes heterogeneity in capital gains tax elasticities across individuals. Using panel data of over 260,000 individuals, I find that the sensitivity of capital gains to taxes is decreasing over the individual life cycle. Younger individuals respond more strongly to changes in capital gains taxes than older individuals. An increase in age of 18 years decreases the lock-in effect of capital gains taxes by approximately 10%.