The Relationship Between
Income Tax Changes and Stock Market Trading Volume
Robert C. Ricketts and Richard M. Walter
This paper reports the results of a study designed
to investigate the long-term reactions of investors to changes in
the taxation of capital gains imposed by the 1981 and 1986 tax acts.
Trading volume patterns are analyzed for portfolios of depreciated
and appreciated stocks. The results are generally consistent with
expectations based on a tax-induced model of investor trading behavior.
Specifically, the results indicate that the 1981 tax act, which
decreased the tax cost of selling appreciated securities by reducing
the maximum tax rate applicable to long-term capital gains, was
followed by a sustained increase in trading volume for those stocks.
The 1981 tax act increased the tax cost of selling loss stocks.
After a period of adjustment following the enactment date, loss-stock
trading volume declined. In contrast, the 1986 tax act decreased
the cost of selling depreciated securities and appears to have stimulated
trading volume in those securities over a sustained period. The
impact on trading volume for gain stocks, however, appears to have
been limited to a short-term reaction during the latter part of
A Study of the Effect
of Taxpayer Risk Perceptions on Ambiguous Compliance Decisions
Anne L. Christensen and Peggy A. Hite
The purpose of this study is to determine if taxpayers'
risk perceptions and subsequent reporting decisions are influenced
by the type of reporting decision (income or deduction), framing
effects (win or lose), and level of certainty (a 33, 55, or 75 percent
chance of withstanding an IRS challenge). Over 400 taxpayers completed
and returned a mail survey that requested the respondents to decide
how they would report either an ambiguous income or an ambiguous
deduction item. The results indicate that when taxpayers' risk propensities
are considered, taxpayers' risk perceptions differ for ambiguous
income and deduction items and their reporting decisions are influenced
by those differences. In addition, taxpayers' decisions are influenced
by level of certainty but not by framing effects. The respondents
indicated a greater willingness to take aggressive positions for
an ambiguous deduction than for ambiguous income. They also took
significantly more aggressive positions when the level of certainty
increased from 33 to 55 percent. There was no significant difference
in decisions when the level of certainty increased from 55 to 75
on the Effects of Tax Incentives on Risky Security Prices
Susan E. Anderson and Janet Butler
The price of an asset is influenced by both its
riskiness and its tax treatment. This study examines the effects
of risk and tax treatment on asset prices by conducting an experimental
market. Two different forms of tax incentives are examined: preferential
treatment of capital gains and an unlimited deduction for capital
losses. The study found that securities with favorable t ax treatment
were higher priced than equally risky, non-tax-favored securities.
There was no difference in the price of a high-risk, tax-favored
security and a lower-risk, fully-taxable (benchmark) security when
the tax-favored security received only one tax benefit. Risky securities
receiving favorable capital gain and loss treatment were higher
priced than the benchmark security. However, these results are dependent
upon the actual magnitudes of the tax rates studied.
Simplification of Schedule
C for Sole Proprietorships: Results from a Survey of Tax Practitioners
Cherie J. O'Neil, Donald P. Samelson, and Michael
This study extends the work of Long and Swingen (1987) and Carnes
and Cuccia (1996) by examining tax practitioner perceptions of tax
complexity as it relates to the Schedule C. It is based
on a survey of tax practitioners conducted by members of the Complexity
Reduction Committee of the American Taxation Association.
According to respondents, the major factors contributing to unnecessary
complexity for the self-employed are the rules regarding auto expense,
depreciation expense and the office-in-home deduction.
Practitioners express support for simplifying the computation and
reporting of these deductions. They do not view Schedule C-EZ
as an improvement over Schedule C and do not make extensive use
of it. The report of the committee, based upon this study,
is presented in appendix A.
Integrating Tax History
Into The Introductory Tax Course
William D. Samson
This paper urges that tax history be included as
part of the introductory tax course because history helps explain
the complexity of much of the current law. History also can set
the stage for understanding how and why the tax law may evolve in
response to future changes in taxpayer behavior, in society, in
economic conditions, or in political circumstances. Because textbook
coverage of tax history is uneven at best, instructors need to consider
integrating history into lectures or out-of-class activities. To
assist, this paper identifies sources of tax history and links these
resources to topics typically covered in the introductory tax course.
Methods of combining history with other activities are described.