The Canadian Tax Reform and Its Effect on Stock Prices: A Note.

The effect of personal taxation on stock prices remains controversial. While some researchers have found evidence of a tax effect in the stock market, others have found evidence to the contrary. This paper provides additional empirical evidence on the effect of the differential taxation of dividends and capital gains on stock prices by analyzing stock price changes around the 1971 Canadian Tax Reform and its subsequent amendments in 1977. The results show that changes in the taxation of cash dividends and capital gains affected high-yield and low-yield stocks listed on the Toronto Stock Exchange (TSE) differently. Section I of the paper describes the tax changes. The method used to analyze the tax effect is described in Section II. Section III reports the results, and conclusions are presented in Section IV. [ABSTRACT FROM AUTHOR]