The Persistence of Individual and Corporate Capital Gains and Losses*

We show that, for both individuals and corporations, there is an aggregate overhang of realized losses that can be expected to have persistent effects. At the taxpayer level, we use panel data to show that the transition probabilities between taxpayers' states of capital realizations—losses, gains, or zero—do not meet the restrictions required for them to be modeled as following a simple time–homogeneous Markov process. Further, a simple Markov model built around the long–term transition probabilities would be too persistent to match short–term transitions. We show that the summary statistics we consider are closely comparable between cohort panels and panels constructed from the overlap of annual cross–sectional data.