Optimal Income Taxation with a Risky Asset – The Triple Income Tax
AbstractWe 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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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1834.
Date of creation: 2006
Date of revision:
optimal taxation; uncertainty; consumption tax; triple income tax;
Other versions of this item:
- Dirk Schindler, 2003. "Optimal Income Taxation with a Risky Asset – The Triple Income Tax," CoFE Discussion Paper, Center of Finance and Econometrics, University of Konstanz 03-11, Center of Finance and Econometrics, University of Konstanz.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-18 (All new papers)
- NEP-PBE-2006-11-18 (Public Economics)
- NEP-PUB-2006-11-18 (Public Finance)
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