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Taxing Risky Capital Income - A Commodity Taxation Approach


  • Dirk Schindler


In a two-period world with endogenous savings and two assets, the optimal tax structure and optimal diversification of aggregate (capital) risk between private and public consumption are analyzed. We show that there is no trade-off between efficiency in intertemporal consumption and allocation of risk; both goals are reached as long as labor supply is exogenous. This requires, however, taxing the excess return at a special tax rate. Optimally extending the dual income tax for risky capital income, accordingly, leads to a tax system with three tax bases: the triple income tax.

Suggested Citation

  • Dirk Schindler, 2008. "Taxing Risky Capital Income - A Commodity Taxation Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(3), pages 311-333, September.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200809)64:3_311:trci-a_2.0.tx_2-e
    DOI: 10.1628/001522108X374151

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    References listed on IDEAS

    1. J. Hirshleifer, 1966. "Investment Decision Under Uncertainty: Applications of the State-Preference Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 80(2), pages 252-277.
    2. Ahsan, Syed M., 1989. "Choice of tax base under uncertainty : Consumption or income?," Journal of Public Economics, Elsevier, vol. 40(1), pages 99-134, October.
    3. Hans-Werner Sinn, 1996. "Social insurance, incentives and risk taking," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 259-280, July.
    4. Syed M. Ahsan, 1990. "Risk-Taking, Savings, and Taxation: A Re-examination of Theory and Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 408-433, May.
    5. 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.
    6. Kaplow, Louis, 1994. "Taxation and Risk Taking: A General Equilibrium Perspective," National Tax Journal, National Tax Association, vol. 47(4), pages 789-98, December.
    7. Kaplow, Louis, 1994. "Taxation and Risk Taking: A General Equilibrium Perspective," National Tax Journal, National Tax Association, vol. 47(4), pages 789-798, December.
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    Cited by:

    1. Paolo M. Panteghini, 2009. "On the equivalence between labor and consumption taxation," Economics Bulletin, AccessEcon, vol. 29(2), pages 622-629.
    2. Wolfgang Buchholz & Kai A. Konrad, 2014. "Taxes on risky returns — an update," Working Papers tax-mpg-rps-2014-10, Max Planck Institute for Tax Law and Public Finance.
    3. Schindler, Dirk, 2008. "Human Capital, Multiple Income Risk and Social Insurance," Discussion Papers 2008/18, Norwegian School of Economics, Department of Business and Management Science.
    4. Dirk Schindler, 2017. "Wealth Taxation, Non-listed Firms, and the Risk of Entrepreneurial Investment," CESifo Working Paper Series 6537, CESifo Group Munich.
    5. Dinkel, Andreas, 2015. "Tax attractiveness and the allocation of risk within multinationals," arqus Discussion Papers in Quantitative Tax Research 189, arqus - Arbeitskreis Quantitative Steuerlehre.

    More about this item


    optimal taxation; aggregate risk; triple income tax;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation


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