2.1 The Irish evidence
The 1997 Budget in Ireland halved the rate of taxation of realized capital gains from 40% to 20%. The then Minister for Finance, Charlie McCreevy, was heavily criticized on the grounds that this change would reduce revenues. He countered by predicting that revenues would rise substantially as a result of the lower tax rate. He was proved entirely correct. Revenues rose considerably, almost trebling in fact, and greatly exceeded official predictions.

2.2 The Swedish evidence
Swedish capital gains taxes varied considerably in the early 1990s, providing useful evidence for the relationship between tax rates and revenue. The Swedish tax reform package introduced in 1991 taxed ordinary income and capital income separately, with capital gains taxed at a rate of 30%. In 1992 the newly elected non-socialist government reduced the capital gains tax-rate to 25% and it was then further reduced to 12.5% in 1994. Uniform 30% taxes were reinstated when the Social democratic party came back to power in 1995.

Professors Sven-Olaf Daunfeldt, Ulrika Praski-Stahlgren and Niklas Rudholm of the University of Gavle studied the effect of these rate changes during the period 1993-1995 and concluded that a 10% increase in capital gains tax reduces the number of realisations of capital gains by 8.7% and the realised amount, given the decision to realise, by an additional 1.9%.2

2.3 The US evidence
Estimates by US experts on the revenue effects of CGT reductions all agree that increasing CGT rates significantly damages the economy, although the estimates of precisely how much harm it will cause differ. A 1988 paper by
Professor Lawrence Lindsey in 1988 concluded "in the long run about 5.4 percent more capital gains will be realized for every one percentage point reduction in the capital gains tax rate."4

2.5 The UK evidence
In 1988 CGT rates were increased by ten points from 30% to 40%. Revenues fell dramatically, more than halving from £2,175m in 87-88 to £976m in 90-91 and further still to £606m in 92-93.