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Taxation, Savings, and Portfolio Choice in a Continuous Time Model

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  • Hamilton, Jonathan H

Abstract

The continuous time model of consumption and portfolio choice is used to examine the effects of taxation of capital income. Several types of taxes on asset returns are analyzed. For utility functions with constant relative risk aversion, the welfare losses under uncertainty equal those in a certainty environment for general capital taxes. Differential tax rates on returns to capital produce larger welfare losses than equal rates on all asset returns. In contrast to other studies, simulated values of the welfare loss from the equal rate tax on returns to capital are smaller. Simulations for differential capital taxes show much greater welfare losses.

Suggested Citation

  • Hamilton, Jonathan H, 1987. "Taxation, Savings, and Portfolio Choice in a Continuous Time Model," Public Finance = Finances publiques, , vol. 42(2), pages 264-282.
    • Handle: RePEc:pfi:pubfin:v:42:y:1987:i:2:p:264-82
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    Cited by:

    1. Kwang Soo Cheong, 1998. "Corporate Income Taxation and Signaling," Public Finance Review, , vol. 26(5), pages 480-502, September.
    2. Kenneth L. Judd, 2011. "The Importance of Asymmetric Tax Policy and Dangers of Aggregation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 175-205, August.
    3. Syed M. Ahsan & Panagiotis Tsigaris, 2009. "The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions," Public Finance Review, , vol. 37(6), pages 710-731, November.
    4. Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, vol. 71(1), pages 1-26, January.
    5. Gunther Rehme, 2002. "Distributive Policies and Economic Growth: An Optimal Taxation Approach," Metroeconomica, Wiley Blackwell, vol. 53(3), pages 315-338, August.
    6. Sialm, Clemens, 2006. "Stochastic taxation and asset pricing in dynamic general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 30(3), pages 511-540, March.
    7. Syed Ahsan & Panagiotis Tsigaris, 2002. "Measuring the Social Discount Rate under Uncertainty: A Methodology and Application," CESifo Working Paper Series 824, CESifo.
    8. Feyzullah Egriboyun & H. Soner, 2010. "Optimal investment strategies with a reallocation constraint," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 71(3), pages 551-585, June.
    9. Whitehouse, Edward, 1999. "The tax treatment of funded pensions," Social Protection Discussion Papers and Notes 20126, The World Bank.
    10. Hazel Bateman, 1997. "Risk Management Issues for Mandatory Private Retirement Provision: Roles for Options," Australian Journal of Management, Australian School of Business, vol. 22(2), pages 175-197, December.
    11. Syed M. Ahsan & Panagiotis Tsigaris, 2003. "Choice of Tax Base Revisited: Cash Flow vs. Prepayment Approaches to Consumption Taxation," CESifo Working Paper Series 983, CESifo.
    12. George R. Zodrow, 2019. "Taxation, Uncertainty and the Choice of a Consumption Tax Base," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 8, pages 227-237, World Scientific Publishing Co. Pte. Ltd..

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