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Uninsurable Investment Risks and Capital Income Taxation

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  • Césaire A. 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://www.bankofcanada.ca/wp-content/uploads/2010/02/wp09-3.pdf
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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 09-3.

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Length: 36 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bca:bocawp:09-3

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Keywords: Economics models;

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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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