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Behavioral Explanation of Tax Asymmetries

  • Martin Fochmann


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

  • Martin Jacob


    (WHU - Otto Beisheim School of Management)

Registered author(s):

    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.

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    File Function: First version, 2011
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    Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 110021.

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    Length: 18 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:mag:wpaper:110021
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