This paper examines the impact on asset prices from a reduction in the long-term capital gains tax rate using an equilibrium approach that considers both demand and supply responses. We demonstrate that the equilibrium impact of capital gains taxes reflects both the capitalization effect (i.e.,...

This paper examines the impact on asset prices from a reduction in the long-term capital gains tax rate using an equilibrium approach that considers both demand and supply responses. We demonstrate that the equilibrium impact of capital gains taxes reflects both the capitalization effect (i.e.,...

We derive cross-sectional implications of a capital gains tax rate change on the risk-return tradeoff on stock investment and show that stocks with higher accrued capital gains experience a larger risk-return tradeoff improvement after a capital gains tax rate cut. Stocks with higher dividend...