Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/186123 
Year of Publication: 
2018
Series/Report no.: 
ZEW Discussion Papers No. 18-046
Publisher: 
Zentrum für Europäische Wirtschaftsforschung (ZEW), Mannheim
Abstract: 
We examine how capital gains taxes affect investment in start-up (i.e., pre-IPO) firms. Using data on capital raised by start-up firms in individual funding rounds, we estimate the effect of the SBJA of 2010, which implemented a full exemption from federal capital gains tax on the sale of qualified shares. Because of higher expected after-tax returns (lower future capital gains taxes), we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start-up firms per funding round by about 12%. We also provide evidence that this effect is concentrated in start-up firms that are likely to be more financially sophisticated.
Subjects: 
Capital Gains Taxes
Start-ups
Tax Capitalization
JEL: 
M13
G24
H25
Document Type: 
Working Paper

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