The Lock-In Effect of Capital Gains Taxation some Microeconomic Formulations

Abstract

The personal income tax in the United States is, at best, an imperfect approximation of the "ideal" tax system regarding its neutrality, or benefical non-neutrality, in terms of equity, allocation, and stabilization influences. 'Thl..s paper will be an attempt to introduce an analytical system which will aid in clarifying one of the most controversial areas in modern tax policy - the preferential tax treatment of capital gains. In particular, the discussion will focus on the alleged "lock-in" effect on investable funds as a direct result of the existing capital gains tax.