The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions
AbstractThe importance of capital loss offset provisions in a world of risk is well documented in the tax literature. However, the potential deadweight losses owing to imperfect offset has not been fully explored. This paper develops a framework whereby that investigation can be carried out and utilizes numerical simulations to investigate the size of potential losses. Results show that when the government and private sector are equally efficient in handling market risk, welfare losses owing to the absence of offset provisions could be substantial. Under plausible assumptions about attitudes towards risk and time preference, and with a capital income tax rate of forty percent, over sixty cents per dollar of tax revenue raised would be dissipated. In contrast, full loss offset would reduce that loss to approximately fourteen cents.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2203.
Date of creation: 2008
Date of revision:
capital income taxation; uncertainty; deadweight loss; loss offset provisions;
Other versions of this item:
- Syed M. Ahsan & Panagiotis Tsigaris, 2009. "The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions," Public Finance Review, , vol. 37(6), pages 710-731, November.
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.:
- Hamilton, Jonathan H, 1987. "Taxation, Savings, and Portfolio Choice in a Continuous Time Model," Public Finance = Finances publiques, , vol. 42(2), pages 264-82.
- Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-97, September.
- Roger E.A. Farmer, 1989.
UCLA Economics Working Papers
547, UCLA Department of Economics.
- Jeremy I. Bulow & Lawrence H. Summers, 1984.
"The Taxation of Risky Assets,"
NBER Working Papers
0897, National Bureau of Economic Research, Inc.
- Syed Ahsan & Peter Tsigaris, 1998.
"The design of a consumption tax under capital risk,"
Journal of Economics,
Springer, vol. 68(1), pages 53-78, February.
- Syed M. Ahsan & Peter Tsigaris, . "The Design of a Consumption Tax under Capital Risk," EPRU Working Paper Series 97-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September.
- Roger H. Gordon & John D. Wilson, 1990.
"Measuring the Efficiency Cost of Taxing Risky Capital Income,"
NBER Working Papers
1992, National Bureau of Economic Research, Inc.
- Gordon, Roger H & Wilson, John Douglas, 1989. "Measuring the Efficiency Cost of Taxing Risky Capital Income," American Economic Review, American Economic Association, vol. 79(3), pages 427-39, June.
- Zodrow, George R., 1995. "Taxation, uncertainty and the choice of a consumption tax base," Journal of Public Economics, Elsevier, vol. 58(2), pages 257-265, October.
- Sandmo, Agnar, 1998. "Redistribution and the marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 70(3), pages 365-382, December.
- Ahsan, Syed M, 1974. "Progression and Risk-Taking," Oxford Economic Papers, Oxford University Press, vol. 26(3), pages 318-28, November.
- 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.
- Jaroslava Hlouskova & Panagiotis Tsigaris, 2012.
"Capital income taxation and risk taking under prospect theory,"
International Tax and Public Finance,
Springer, vol. 19(4), pages 554-573, August.
- Hlouskova, Jaroslava & Tsigaris, Panagiotis, 2012. "Capital Income Taxation and Risk Taking under Prospect Theory," Economics Series 283, Institute for Advanced Studies.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.