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On the Equivalence between Labor and Consumption Taxation

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  • Paolo Panteghini

Abstract

This article studies the equivalence between labor and consumption taxes in a stochastic context, where the government can undertake an active portfolio management strategy by investing in both risk-free and risky assets. Using a two-period model we show that such taxes let consumers make the same decisions, and can finance the same amount of government spending in each period.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-03/cesifo1_wp2593.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2593.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2593

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Keywords: consumption and labor taxation; equivalence; risk;

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References

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  1. Dirk Schindler, 2008. "Taxing Risky Capital Income - A Commodity Taxation Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 64(3), pages 311-333, September.
  2. Kaplow, Louis, 1994. "Taxation and Risk Taking: A General Equilibrium Perspective," National Tax Journal, National Tax Association, vol. 47(4), pages 789-98, December.
  3. Emmanuel Farhi, 2007. "Capital Taxation and Ownership when Markets are Incomplete," NBER Working Papers 13390, National Bureau of Economic Research, Inc.
  4. Zodrow, George R., 1995. "Taxation, uncertainty and the choice of a consumption tax base," Journal of Public Economics, Elsevier, Elsevier, vol. 58(2), pages 257-265, October.
  5. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, American Economic Association, vol. 71(4), pages 533-44, September.
  6. Louis Kaplow, 1991. "Taxation and Risk Taking: A General Equilibrium Perspective," NBER Working Papers 3709, National Bureau of Economic Research, Inc.
  7. Syed Ahsan & Peter Tsigaris, 1998. "The design of a consumption tax under capital risk," Journal of Economics, Springer, Springer, vol. 68(1), pages 53-78, February.
  8. Sandmo, Agnar, 1985. "The effects of taxation on savings and risk taking," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 5, pages 265-311 Elsevier.
  9. Ahsan, Syed M., 1989. "Choice of tax base under uncertainty : Consumption or income?," Journal of Public Economics, Elsevier, Elsevier, vol. 40(1), pages 99-134, October.
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Citations

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Cited by:
  1. Alessandro Fedele & Paolo M. Panteghini & Sergio Vergalli, 2011. "Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 12(4), pages 438-468, November.
  2. Francesco Menoncin & Paolo Panteghini, 2009. "Retrospective Capital Gains taxation in the real world," Working Papers, University of Brescia, Department of Economics 0910, University of Brescia, Department of Economics.
  3. Del Boca, Alessandra & Fratianni, Michele & Spinelli, Franco & Trecroci, Carmine, 2010. "The Phillips curve and the Italian lira, 1861-1998," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 21(2), pages 182-197, August.
  4. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2014. "Competitive markets with private information on both sides," Economic Theory, Springer, Springer, vol. 55(2), pages 257-280, February.
  5. Monica Billio & Roberto Casarin, 2010. "Bayesian Estimation of Stochastic-Transition Markov-Switching Models for Business Cycle Analysis," Working Papers, University of Brescia, Department of Economics 1002, University of Brescia, Department of Economics.
  6. Alberto Bisin & John Geanakoplos & Piero Gottardi & Enrico Minelli & Herakles Polemarchakis, 2010. "Markets and contracts," Economics Working Papers, European University Institute ECO2010/29, European University Institute.
  7. Alessandro Fedele & Raffaele Miniaci, 2009. "Do social enterprises finance their investments differently from for-profit firms? The case of social residential services in Italy," Working Papers, University of Brescia, Department of Economics 0911, University of Brescia, Department of Economics.
  8. Alessandro Fedele & Francesco Liucci & Andrea Mantovani, 2009. "Credit availability in the crisis: the European investment bank group," Working Papers, University of Brescia, Department of Economics 0913, University of Brescia, Department of Economics.
  9. Rosella Levaggi & Francesco Menoncin, 2009. "Decentralized provision of merit and impure public goods," Working Papers, University of Brescia, Department of Economics 0909, University of Brescia, Department of Economics.

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