Working Paper: NBER ID: w0806
Authors: Alan J. Auerbach
Abstract: This paper explores the taxation of risky assets, both from the theoretical perspective of optimal taxation and from the practical one of measuring "the" tax rate on an asset when, as under existing practice, its stochastic returns are subject to differential tax treatment across states of nature. The results suggest that it may be "appropriate" for tax rates to vary systematically with the riskiness of an asset, but that use of the expected tax rate to evaluate the characteristics of any particular tax system may be very misleading.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Taxation (H20) | Mitigation of externalities arising from risk aversion (D81) |
| Higher tax burdens on riskier assets (H22) | Justification under increasing relative risk aversion (D11) |
| Increasing relative risk aversion (D11) | Efficient to tax riskier assets more heavily (H21) |
| Risk-adjusted effective tax rate (RET) (H23) | Better reflection of true tax burden on risky assets (H32) |
| Higher RET on riskier assets in states with greater returns (G19) | True tax burden on risky assets (H22) |
| Taxation impacts investor decisions (H32) | Market efficiency (G14) |