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Uninsurable investment risks and capital income taxation

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  • Césaire Meh

    ()

  • Yaz Terajima

    ()

Abstract

This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks. It has been shown that, with uninsurable investment risks, under-accumulation of capital may result compared to the complete markets economy. We show that reducing somewhat the capital income tax rate increases the capital stock and leads to a welfare gain. The complete elimination of the capital income tax, however, is not necessarily welfare improving.

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File URL: http://hdl.handle.net/10.1007/s10436-008-0112-8
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Bibliographic Info

Article provided by Springer in its journal Annals of Finance.

Volume (Year): 5 (2009)
Issue (Month): 3 (June)
Pages: 521-541

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Handle: RePEc:kap:annfin:v:5:y:2009:i:3:p:521-541

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Web page: http://www.springerlink.com/link.asp?id=112370

Related research

Keywords: Investment risk; Borrowing constraints; Capital accumulation; Capital income taxation; E21; E22; E62; G32; H24; H25;

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References

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Cited by:
  1. Mariacristina De Nardi & Anne Villamil, 2009. "Entrepreneurship, finance and employment," Annals of Finance, Springer, vol. 5(3), pages 289-293, June.

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