First-best optimality in capital income taxation
Working paper
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http://hdl.handle.net/11250/162888Utgivelsesdato
2004-10Metadata
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- Discussion papers (SAM) [647]
Sammendrag
In case of risk, especially aggregate risk which cannot be insured, the literature
states that for achieving first-best optimality state-dependent lumpsum
taxes are absolutely necessary. However, we show in a two-asset portfolio
choice model that a suitably designed capital income tax can ensure
a first-best solution without using state-dependent lump-sum taxes. Therefore,
taxation must not focus on the single assets’ returns but on the prices
of commodities, embedded in these assets. Hence, our tax system uses the
prices for resource shifting into the future and for incurring risk as tax bases.
Utgiver
Norwegian School of Economics and Business Administration. Department of EconomicsSerie
Discussion paper2004:26