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Taxing Risky Capital Income - A Commodity Taxation Approach

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  • Dirk Schindler

Abstract

In a two-period world with endogenous savings and two assets, the optimal tax structure and optimal diversification of aggregate (capital) risk between private and public consumption are analyzed. We show that there is no trade-off between efficiency in intertemporal consumption and allocation of risk; both goals are reached as long as labor supply is exogenous. This requires, however, taxing the excess return at a special tax rate. Optimally extending the dual income tax for risky capital income, accordingly, leads to a tax system with three tax bases: the triple income tax.

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  • Dirk Schindler, 2008. "Taxing Risky Capital Income - A Commodity Taxation Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(3), pages 311-333, September.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200809)64:3_311:trci-a_2.0.tx_2-e
    DOI: 10.1628/001522108X374151
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    Cited by:

    1. Dirk Schindler, 2017. "Wealth Taxation, Non-listed Firms, and the Risk of Entrepreneurial Investment," CESifo Working Paper Series 6537, CESifo.
    2. Paolo M. Panteghini, 2009. "On the equivalence between labor and consumption taxation," Economics Bulletin, AccessEcon, vol. 29(2), pages 622-629.
    3. Spencer Bastani & Daniel Waldenström, 2020. "How Should Capital Be Taxed?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 812-846, September.
    4. Robin Boadway & Kevin Spiritus, 2021. "Optimal Taxation of Normal and Excess Returns to Risky Assets," Tinbergen Institute Discussion Papers 21-025/VI, Tinbergen Institute.
    5. Aart Gerritsen & Bas Jacobs & Alexandra Victoria Rusu & Kevin Spiritus, 2020. "Optimal Taxation of Capital Income with Heterogeneous Rates of Return," CESifo Working Paper Series 8395, CESifo.
    6. Kevin Spiritus & Robin Boadway, 2017. "The Optimal Taxation of Risky Capital Income: The Rate of Return Allowance," CESifo Working Paper Series 6297, CESifo.
    7. Wolfgang Buchholz & Kai A. Konrad, 2014. "Taxes on risky returns — an update," Working Papers tax-mpg-rps-2014-10, Max Planck Institute for Tax Law and Public Finance.
    8. Schindler, Dirk, 2008. "Human Capital, Multiple Income Risk and Social Insurance," Discussion Papers 2008/18, Norwegian School of Economics, Department of Business and Management Science.
    9. Dinkel, Andreas, 2015. "Tax attractiveness and the allocation of risk within multinationals," arqus Discussion Papers in Quantitative Tax Research 189, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    Keywords

    optimal taxation; aggregate risk; triple income tax;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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