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The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions

Author

Listed:
  • Syed M. Ahsan

    (Concordia University, Montreal, Quebec, Canada)

  • Panagiotis Tsigaris

    (Thompson Rivers University, Kamloops, British Columbia, Canada, ptsigaris@tru.ca)

Abstract

The 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 article develops a framework, whereby that investigation can be carried out, and uses numerical simulations to investigate the size of potential losses. The results obtained show that welfare losses owing to the absence of offset provisions could be substantial. Under plausible assumptions about attitudes toward risk and time preference, and with a capital income tax rate of 35 percent, over forty-five cents per dollar of tax revenue raised may be dissipated. In contrast, full loss offset may reduce that loss to approximately twelve cents.

Suggested Citation

  • 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.
  • Handle: RePEc:sae:pubfin:v:37:y:2009:i:6:p:710-731
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    References listed on IDEAS

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    Cited by:

    1. Jaroslava Hlouskova & Panagiotis Tsigaris, 2012. "Capital income taxation and risk taking under prospect theory," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 554-573, August.
    2. repec:eee:mateco:v:70:y:2017:i:c:p:74-89 is not listed on IDEAS
    3. Jaroslava Hlouskova & Jana Mikocziova & Rudolf Sivak & Peter Tsigaris, 2014. "Capital Income Taxation and Risk-Taking under Prospect Theory: The Continuous Distribution Case," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(5), pages 374-391, November.

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