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The Taxation of Risky Assets

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  • Jeremy I. Bulow
  • Lawrence H. Summers

Abstract

This paper reconsiders the effects of taxation on risky assets, recognizing the importance of variations in asset prices. We show that earlier analyses which assumed that depreciation rates are constant and that the future price of capital goods is known with certainty are very misleading, as guides to the effects of corporate taxes. We then examine the concept of economic depreciation in a risky environment, and show that depreciation allowances, if set ex-ante, should be adjusted to take account of future asset price risk. Some empirical calculations suggest that these adjustments are large, and have important implications for the burdens of, and non-neutralities in, the corporate income tax.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0897.

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Date of creation: Jun 1982
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Publication status: published as Bulow, Jeremy I. and Lawrence H. Summers. " The Taxation of Risky Assets." Journal of Political Economy, Vol. 92, No. 1, (February 1984), pp. 20-39.
Handle: RePEc:nbr:nberwo:0897

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  1. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  2. Robert J. Gordon, 1979. "Energy Efficiency, User Cost Changes, and the Measurement of Durable Goods Prices," NBER Working Papers 0408, National Bureau of Economic Research, Inc.
  3. Feldstein, Martin S, 1969. "The Effects on Taxation on Risk Taking," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 77(5), pages 755-64, Sept./Oct.
  4. Roger H. Gordon, 1981. "Taxation of Corporate Capital Income: Tax Revenues vs. Tax Distortions," NBER Working Papers 0687, National Bureau of Economic Research, Inc.
  5. Mintz, Jack M, 1981. "Some Additional Results on Investment, Risk Taking, and Full Loss Offset Corporate Taxation with Interest Deductibility," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 96(4), pages 631-42, November.
  6. James Tobin, 1956. "Liquidity Preference as Behavior Towards Risk," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 14, Cowles Foundation for Research in Economics, Yale University.
  7. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
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