IMITATING ACCRUAL TAXATION ON A REALIZATION BASIS

While taxation of capital gains upon accrual poses problems of liquidity and valuation, taxation upon realization evokes the so‐called lock‐in effect that possibly induces distortions of the investors' liquidation and investment decision. The tax schemes, proposed in the literature in order to...

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Bibliographic Details
Published in:Journal of economic surveys 2009-09, Vol.23 (4), p.734-761
Main Author: Sahm, Marco
Format: Article
Language:English
Subjects:
Accrual tax
Accruals
Capital gains
Capital gains tax
Corporate finance
Corporate taxation
Economic surveys
Financial accounting
Formulaic taxation
Lock-in effect
Realization tax
Review articles
Studies
Taxation
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Summary:While taxation of capital gains upon accrual poses problems of liquidity and valuation, taxation upon realization evokes the so‐called lock‐in effect that possibly induces distortions of the investors' liquidation and investment decision. The tax schemes, proposed in the literature in order to remedy simultaneously the shortcomings of both taxation methods, are mostly based on the idea of imitating accrual taxation on a realization basis. The paper surveys these proposals of so‐called formulaic taxation and develops a uniform formal way of describing the suggested schemes that allows them to be easily compared and evaluated from a theoretic point of view.
ISSN:0950-0804
1467-6419
DOI:10.1111/j.1467-6419.2009.00577.x