IDEAS home Printed from https://ideas.repec.org/p/mpi/wpaper/tax-mpg-rps-2014-10.html
   My bibliography  Save this paper

Taxes on risky returns — an update

Author

Listed:
  • Wolfgang Buchholz
  • Kai A. Konrad

Abstract

This paper surveys the theory on taxes on risky returns that originated from Domar and Musgrave (1944). Emphasis is given to the role of complete capital markets and on capital market imperfections arising from limited liability, moral hazard and adverse selection.

Suggested Citation

  • 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.
    • Handle: RePEc:mpi:wpaper:tax-mpg-rps-2014-10
    as

    Download full text from publisher

    File URL: http://www.tax.mpg.de/RePEc/mpi/wpaper/TAX-MPG-RPS-2014-10.pdf
    File Function: Full text (original version)
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hans-Werner Sinn, 1994. "A Theory of the Welfare State," CESifo Working Paper Series 65, CESifo.
    2. Kai A. Konrad & Wolfram F. Richter, 1995. "Capital Income Taxation and Risk Spreading with Adverse Selection," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 617-630, August.
    3. Christian Keuschnigg & Søren Bo Nielsen, 2004. "Progressive Taxation, Moral Hazard, and Entrepreneurship," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 471-490, August.
    4. Keuschnigg, Christian & Nielsen, Soren Bo, 2003. "Tax policy, venture capital, and entrepreneurship," Journal of Public Economics, Elsevier, vol. 87(1), pages 175-203, January.
    5. Johannes Becker & Clemens Fuest, 2007. "Why is there Corporate Taxation? The Role of Limited Liability Revisited," Journal of Economics, Springer, vol. 92(1), pages 1-10, September.
    6. Eeckhoudt, Louis & Gollier, Christian & Schlesinger, Harris, 1997. "The no-loss offset provision and the attitude towards risk of a risk-neutral firm," Journal of Public Economics, Elsevier, vol. 65(2), pages 207-217, August.
    7. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-715, September.
    8. repec:bla:scandj:v:97:y:1995:i:4:p:495-526 is not listed on IDEAS
    9. Jack M. Mintz, 1981. "Some Additional Results on Investment, Risk Taking, and Full Loss Offset Corporate Taxation with Interest Deductibility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(4), pages 631-642.
    10. De Meza, David & Webb, David C., 1988. "Credit market efficiency and tax policy in the presence of screening costs," Journal of Public Economics, Elsevier, vol. 36(1), pages 1-22, June.
    11. Robin Boadway & Michael Keen, 2006. "Financing and Taxing New Firms under Asymmetric Information," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 471-502, December.
    12. Kai A. Konrad, 1991. "Risk Taking and Taxation in Complete Capital Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 16(2), pages 167-177, December.
    13. Gordon, Roger H. & Varian, Hal R., 1988. "Intergenerational risk sharing," Journal of Public Economics, Elsevier, vol. 37(2), pages 185-202, November.
    14. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
    15. Ralf Ewert & Rainer Niemann, 2012. "Limited Liability, Asymmetric Taxation, and Risk Taking - Why Partial Tax Neutralities Can Be Harmful," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(1), pages 83-120, March.
    16. Bulow, Jeremy I & Summers, Lawrence H, 1984. "The Taxation of Risky Assets," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 20-39, February.
    17. von Weizsäcker, Robert K & Wigger, Berthold, 1998. "Risk, Resources and Education," CEPR Discussion Papers 1808, C.E.P.R. Discussion Papers.
    18. 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.
    19. Hellwig, Martin F, 1981. "Bankruptcy, Limited Liability, and the Modigliani-Miller Theorem," American Economic Review, American Economic Association, vol. 71(1), pages 155-170, March.
    20. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 281-292.
    21. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    22. Pierre‐André Chiappori & Monica Paiella, 2011. "Relative Risk Aversion Is Constant: Evidence From Panel Data," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1021-1052, December.
    23. Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-388, June.
    24. Hagen, Kare P. & Sannarnes, Jan Gaute, 2007. "Taxation of uncertain business profits, private risk markets and optimal allocation of risk," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1507-1517, August.
    25. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    26. De Meza, David & Webb, David C., 1989. "The role of interest rate taxes in credit markets with divisible projects and asymmetric information," Journal of Public Economics, Elsevier, vol. 39(1), pages 33-44, June.
    27. Roger H. Gordon, 1985. "Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 1-27.
    28. Sinn, Hans-Werner, 1982. "Kinked utility and the demand for human wealth and liability insurance," European Economic Review, Elsevier, vol. 17(2), pages 149-162.
    29. Martin Hellwig, 1986. "Risikoallokation in einem Marktsystem," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 122(III), pages 231-251, September.
    30. Jonathan Eaton & Harvey S. Rosen, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 357-364.
    31. Innes, Robert, 1991. "Investment and government intervention in credit markets when there is asymmetric information," Journal of Public Economics, Elsevier, vol. 46(3), pages 347-381, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robin Boadway & Motohiro Sato & Jean-Francois Tremblay, 2015. "Cash-flow business taxation revisited: bankruptcy, risk aversion and asymmetric information," Working Papers 1531, Oxford University Centre for Business Taxation.
    2. Eddy Zanoutene, 2023. "Scale‐dependent and risky returns to savings: Consequences for optimal capital taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(3), pages 532-569, June.
    3. Kevin Spiritus & Robin Boadway, 2017. "The Optimal Taxation of Risky Capital Income: The Rate of Return Allowance," Working Papers of Department of Economics, Leuven 573073, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    4. Robin Boadway & Pierre Pestieau, 2018. "The tenuous case for an annual wealth tax," Working Papers 2018/01, Institut d'Economia de Barcelona (IEB).
    5. repec:ces:ifodic:v:16:y:2018:i:2:p:50000000002753 is not listed on IDEAS
    6. Robin Boadway & Pierre Pestieau, 2019. "Over the Top: Why an Annual Wealth Tax for Canada is Unnecessary," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 546, June.
    7. Becker, Johannes & Johannesen, Niels & Riedel, Nadine, 2020. "Taxation and the allocation of risk inside the multinational firm," Journal of Public Economics, Elsevier, vol. 183(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keuschnigg, Christian & Nielsen, Soren Bo, 2003. "Tax policy, venture capital, and entrepreneurship," Journal of Public Economics, Elsevier, vol. 87(1), pages 175-203, January.
    2. Konrad, Kai A., 1991. "The Domar-Musgrave phenomenon and adverse selection," European Journal of Political Economy, Elsevier, vol. 7(1), pages 41-53, April.
    3. Hans-Werner Sinn, 1996. "Social insurance, incentives and risk taking," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 259-280, July.
    4. Syed Ahsan & Panagiotis Tsigaris, 2002. "Measuring the Social Discount Rate under Uncertainty: A Methodology and Application," CESifo Working Paper Series 824, CESifo.
    5. Bas Jacobs & Sweder J. G. van Wijnbergen, 2007. "Capital-Market Failure, Adverse Selection, and Equity Financing of Higher Education," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(1), pages 1-32, March.
    6. Hyytinen, Ari & Takalo, Tuomas, 2008. "Investor protection and business creation," International Review of Law and Economics, Elsevier, vol. 28(2), pages 113-122, June.
    7. Schindler, Dirk, 2003. "Optimal Income Taxation with a Risky Asset: The Triple Income Tax," CoFE Discussion Papers 03/11, University of Konstanz, Center of Finance and Econometrics (CoFE).
    8. Dinkel, Andreas, 2015. "Tax attractiveness and the allocation of risk within multinationals," arqus Discussion Papers in Quantitative Tax Research 189, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. Hans Bacher & Marius Brülhart, 2013. "Progressive taxes and firm births," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 129-168, February.
    10. Brent Kreider, 2008. "Optimal Wage Taxation When Human Capital And Employment Are Endogenous," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 660-675, October.
    11. Hoff, Karla & Lyon, Andrew B., 1995. "Non-leaky buckets: Optimal redistributive taxation and agency costs," Journal of Public Economics, Elsevier, vol. 58(3), pages 365-390, November.
    12. 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.
    13. 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.
    14. Poterba, James M., 2002. "Taxation, risk-taking, and household portfolio behavior," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 17, pages 1109-1171, Elsevier.
    15. 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.
    16. Keuschnigg, Christian & Ribi, Evelyn, 2010. "Profit Taxation, Innovation and the Financing of Heterogeneous Firms," CEPR Discussion Papers 7626, C.E.P.R. Discussion Papers.
    17. Panu Poutvaara, 2006. "On the political economy of social security and public education," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(2), pages 345-365, June.
    18. Konrad, Kai A., 1989. "Kapitaleinkommensteuern und beschleunigte Abschreibungen bei Unsicherheit," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 47(3), pages 404-427.
    19. Francesco Cohen & Alessandro Fedele & Paolo M. Panteghini, 2016. "Corporate taxation and financial strategies under asymmetric information," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(1), pages 9-34, April.
    20. 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..

    More about this item

    Keywords

    risk taking; taxation; capital markets;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpi:wpaper:tax-mpg-rps-2014-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hans Mueller (email available below). General contact details of provider: https://edirc.repec.org/data/mptaxde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.