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Behavioral Explanation of Tax Asymmetries

Author

Listed:
  • Martin Fochmann

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Martin Jacob

    (WHU - Otto Beisheim School of Management)

Abstract

This note develops a behavioral explanation for the existence of an asymmetric tax treatment of gains and losses when investors are loss averse. We find that loss offset rules should be more restrictive for investors which are (1) more risk averse in case of gains, (2) less risk seeking in case of losses, or (3) more loss averse. Our findings have important policy implications. Tax authorities often implement identical loss offset rules for different investor clienteles. However, there should be specific loss offset rules for investors who differ in risk attitude as well as in loss aversion.

Suggested Citation

  • Martin Fochmann & Martin Jacob, 2011. "Behavioral Explanation of Tax Asymmetries," FEMM Working Papers 110021, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:110021
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    References listed on IDEAS

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    Cited by:

    1. Martin Jacob & Jan Södersten, 2013. "Mitigating Shareholder Taxation in Small Open Economies?," Finnish Economic Papers, Finnish Economic Association, vol. 26(1), pages 1-12, Spring.

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    More about this item

    Keywords

    Asymmetric Taxation; Loss Offset Rules; Loss Aversion; Behavioral Economics;
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