Resource title

Shall We Tax the Risk Premium?

Resource image

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Resource description

Should the realized risk premium be taxed – or not? In a simple two asset portfolio model we analyze the optimal taxation rule when the economy faces aggregate risk. We show in an appropriate designed tax system, that the risk premium of the risky asset should be fully taxed if the households are risk neutral in public consumption. If they are risk averse in public consumption, too, a positive tax rate below 100 % is optimal. We show further, that an efficient risk allocation between public and private consumption can be achieved without any distortion costs.

Resource author

Dirk Schindler, Bodo Hilgers

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/23551

Resource license

Adapt according to the presented license agreement and reference the original author.