International Evidence on the Effects of Having No Capital Gains Taxes

David Robinson is an associate professor of economics at Laurentian
University.

Do the benefits from eliminating the capital gains tax outweigh the
costs? It is surprisingly difficult to come up with a compelling answer.
Elimination is likely to increase national income and productivity, but
it will also reduce public revenues, create incentives for tax
avoidance, and increase inequality of income. Herb Grubel, a
professional economist teaching at Simon Fraser University, and also an
ex-Reform MP, believes that the evidence makes a good case for
eliminating the tax.

Taken together the papers in this volume provide a reasonably balanced
overview, with valuable international comparisons. Hsu and Yuen discuss
tax avoidance due to the absence of a capital gains tax in Hong Kong.
Oliver examines similar problems in New Zealand. Diaz, who became
minister of finance in Vincente Fox’s Mexican government, argues that
capital gains should be treated the way profit income is treated; he
credits the approach to Canada’s Carter Commission in the 1950s.
Kugler and Lenz look at Swiss cantons with and without the capital gains
tax and conclude that having no tax is better. Separate essays by
Bracewell-Milnes, Freebairn, and McDowell study the history and merits
of indexing capital gains for inflation in Britain, Australia, and
Ireland, respectively.

Grubel’s introductory essay provides a useful summary, his ideology
clearly showing when he writes: “The alleged economic success of
communism … created an intellectual and political environment for the
expansion of government and higher taxes.” In my judgment as a
left-leaning economist, however, there is a lot of useful information
here. Is the book good economics or just a political tract? It is
clearly more fact than tract.