Shall We Tax the Risk Premium?
AbstractShould the realized risk premium be taxed – or not? In a simple two asset portfolio model we analyze the optimal taxation rule when the economy faces aggregate risk. We show in an appropriate designed tax system, that the risk premium of the risky asset should be fully taxed if the households are risk neutral in public consumption. If they are risk averse in public consumption, too, a positive tax rate below 100 % is optimal. We show further, that an efficient risk allocation between public and private consumption can be achieved without any distortion costs.
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Bibliographic InfoPaper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 02-17.
Length: 19 pages
Date of creation: 10 Oct 2002
Date of revision:
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D10 - Microeconomics - - Household Behavior - - - General
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