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Optimal Income Taxation with a Risky Asset – The Triple Income Tax

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Author Info
Dirk Schindler ()

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Abstract

We show in a two-period world with endogenous savings and two assets, one of them exhibiting a stochastic return, that an interest-adjusted income tax is optimal. This tax leaves a riskless component of interest income tax free and taxes the excess return with a special tax rate. There is no trade-off between risk allocation and efficiency in intertemporal consumption. Both goals are reached. As the resulting tax system divides income into three parts, the tax can also be called a Triple Income Tax. This distinction and a special tax rate on the excess return are necessary in order to have an optimal risk-shifting effect.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1834.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1834

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Related research
Keywords: optimal taxation; uncertainty; consumption tax; triple income tax;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August. [Downloadable!] (restricted)
  2. Eaton, Jonathan & Rosen, Harvey S, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 357-64, September. [Downloadable!] (restricted)
  3. Sandmo, Agnar, 1985. "The effects of taxation on savings and risk taking," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 5, pages 265-311 Elsevier. [Downloadable!] (restricted)
  4. Vidar Christiansen, 1993. "A Normative Analysis of Capital Income Taxes in the Presence of Aggregate Risk," The Geneva Risk and Insurance Review, Palgrave Macmillan Journals, vol. 18(1), pages 55-76, June. [Downloadable!] (restricted)
  5. Wolfram Richter, 1992. "The optimal taxation of risky capital income: An elasticity rule," Journal of Economics, Springer, vol. 55(1), pages 101-111, February. [Downloadable!] (restricted)
  6. Louis Kaplow, 1995. "Taxation and Risk Taking: A General Equilibrium Perspective," NBER Working Papers 3709, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, vol. 14(3), pages 365-374, December. [Downloadable!] (restricted)
  8. Jeremy I. Bulow & Lawrence H. Summers, 1984. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Gordon, Roger H, 1985. "Taxation of Corporate Capital Income: Tax Revenues versus Tax Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 1-27, February.
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  1. De Grauwe, Paul & Rovira, altwasser, P, 2006. "A behavioural finance model of the exchange rate with many forecasting rules," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/103684, Katholieke Universiteit Leuven. [Downloadable!]
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