Treasury bill yield reactions to the 1997 capital gains tax rate reduction

Persistent Link:
http://hdl.handle.net/10150/280313
Title:
Treasury bill yield reactions to the 1997 capital gains tax rate reduction
Author:
Novack, Garth F.
Issue Date:
2003
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
This study tests the equilibrium of after-tax rates of return described in Miller (1977) by investigating whether a change in tax rates affects the return of an investment asset that is not directly taxed by the rate being changed. Using a model of after-tax investment returns I predict the yields of Treasury bills, which are subject only to ordinary tax rates, have an inverse reaction to changes in the capital gains tax rate. In a sample of daily Treasury bill data, yields appear to increase in response to the surprise reduction in capital gains tax rates on May 7, 1997. While small, this increase is statistically significant and is robust to other macroeconomic determinants. These findings contribute to the accounting literature on taxes and investment pricing by providing evidence of Miller's after-tax equilibrium in a potentially cleaner setting than is used in previous studies. Evidence that a financial instrument subject to ordinary rates alone may be affected by the announcement of a change in the capital gains tax rate suggests that shareholder-level taxes are capitalized into prices in ways not investigated by existing research. Accounting researchers will find these results useful because they suggest that the effects of changes in tax rates on asset prices are likely misstated in studies using settings where both the ordinary and capital gains tax rates change. Since the Treasury bill yield forms the basis of many consumer contracts, such as credit card agreements, policy makers should also be interested in these findings because they suggest changes to the capital gains tax rate may have unintended market consequences.
Type:
text; Dissertation-Reproduction (electronic)
Keywords:
Business Administration, Accounting.; Economics, Finance.
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Graduate College; Business Administration
Degree Grantor:
University of Arizona
Advisor:
Dhaliwal, Dan S.

Full metadata record

DC FieldValue Language
dc.language.isoen_USen_US
dc.titleTreasury bill yield reactions to the 1997 capital gains tax rate reductionen_US
dc.creatorNovack, Garth F.en_US
dc.contributor.authorNovack, Garth F.en_US
dc.date.issued2003en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThis study tests the equilibrium of after-tax rates of return described in Miller (1977) by investigating whether a change in tax rates affects the return of an investment asset that is not directly taxed by the rate being changed. Using a model of after-tax investment returns I predict the yields of Treasury bills, which are subject only to ordinary tax rates, have an inverse reaction to changes in the capital gains tax rate. In a sample of daily Treasury bill data, yields appear to increase in response to the surprise reduction in capital gains tax rates on May 7, 1997. While small, this increase is statistically significant and is robust to other macroeconomic determinants. These findings contribute to the accounting literature on taxes and investment pricing by providing evidence of Miller's after-tax equilibrium in a potentially cleaner setting than is used in previous studies. Evidence that a financial instrument subject to ordinary rates alone may be affected by the announcement of a change in the capital gains tax rate suggests that shareholder-level taxes are capitalized into prices in ways not investigated by existing research. Accounting researchers will find these results useful because they suggest that the effects of changes in tax rates on asset prices are likely misstated in studies using settings where both the ordinary and capital gains tax rates change. Since the Treasury bill yield forms the basis of many consumer contracts, such as credit card agreements, policy makers should also be interested in these findings because they suggest changes to the capital gains tax rate may have unintended market consequences.en_US
dc.typetexten_US
dc.typeDissertation-Reproduction (electronic)en_US
dc.subjectBusiness Administration, Accounting.en_US
dc.subjectEconomics, Finance.en_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.disciplineBusiness Administrationen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorDhaliwal, Dan S.en_US
dc.identifier.proquest3089998en_US
dc.identifier.bibrecord.b44425338en_US
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