The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions
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 paper develops a framework whereby that investigation can be carried out and utilizes numerical simulations to investigate the size of potential losses. Results show that when the government and private sector are equally efficient in handling market risk, welfare losses owing to the absence of offset provisions could be substantial. Under plausible assumptions about attitudes towards risk and time preference, and with a capital income tax rate of forty percent, over sixty cents per dollar of tax revenue raised would be dissipated. In contrast, full loss offset would reduce that loss to approximately fourteen cents.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roger E. A. Farmer, 1990.
The Quarterly Journal of Economics,
Oxford University Press, vol. 105(1), pages 43-60.
- Roger E.A. Farmer, 1989. "Rince Preferences," UCLA Economics Working Papers 547, UCLA Department of Economics.
- Ahsan, Syed M, 1974. "Progression and Risk-Taking," Oxford Economic Papers, Oxford University Press, vol. 26(3), pages 318-328, November.
- Hamilton, Jonathan H, 1987. "Taxation, Savings, and Portfolio Choice in a Continuous Time Model," Public Finance = Finances publiques, , vol. 42(2), pages 264-282.
- Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-544, September.
- Gordon, Roger H & Wilson, John Douglas, 1989. "Measuring the Efficiency Cost of Taxing Risky Capital Income," American Economic Review, American Economic Association, vol. 79(3), pages 427-439, June.
- Roger H. Gordon & John D. Wilson, 1986. "Measuring the Efficiency Cost of Taxing Risky Capital Income," NBER Working Papers 1992, National Bureau of Economic Research, Inc.
- Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
- Bulow, Jeremy I & Summers, Lawrence H, 1984. "The Taxation of Risky Assets," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 20-39, February.
- Jeremy I. Bulow & Lawrence H. Summers, 1982. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc.
- Sandmo, Agnar, 1998. "Redistribution and the marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 70(3), pages 365-382, December.
- 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.
- Syed M. Ahsan & Peter Tsigaris, "undated". "The Design of a Consumption Tax under Capital Risk," EPRU Working Paper Series 97-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Roger H. Gordon, 1985. "Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 1-27.
- Zodrow, George R., 1995. "Taxation, uncertainty and the choice of a consumption tax base," Journal of Public Economics, Elsevier, vol. 58(2), pages 257-265, October.
- Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February. Full references (including those not matched with items on IDEAS)