The economic effects of the new rules for the taxation of income from financial investment

The paper examines the economic effects of the tax rules that entered into force on 1 July 1998. While the difference with respect to the previous regime is negligible for bond portfolios, the taxation of capital gains has an appreciable impact on equity portfolios, reducing positive returns but also increasing negative returns (tax credit). The risk-sharing effect created by the new legislation reduces expected returns and volatility and, under certain conditions, can lead to greater demand for risky financial assets and higher equilibrium pre-tax returns. The uniformity of the tax rates and the equalizer mechanism tend to eliminate distortions and lock-in effects and to ensure the neutrality of taxation on the financial market. However, the tax advantage awarded to managed portfolios finds a limit in the difficulties of tax harmonization and coexistence between different, competing national systems.