Risk-Taking, Savings, and Taxation: A Re-examination of Theory and Policy

Syed Ahsan ()

Canadian Journal of Economics, 1990, vol. 23, issue 2, 408-33

Abstract: Considering broad-based taxes (consumption and income), this paper shows that both savings and risk-taking may be discouraged or left unchanged by proportional taxation with full loss-offsets. The analysis is carried out in a simple two-period model of asset and consumption allocation. These results are in sharp contrast to the standard result obtained in pure portfolio choice theory. The author further shows that a wealth tax may be construed as a "prepayment" version of the (cash flow) consumption tax. Compared with the latter, the wealth tax led to lower savings, but a riskier portfolio.

Date: 1990
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