Ex-Post Equivalence under Capital Gains Taxation

Francesco Menoncin () and Paolo Panteghini

Economics Bulletin, 2012, vol. 32, issue 2, 1671-1679

Abstract: In this article, we analyze a state-contingent tax on capital gains. We start by focusing on Auerbach's (1991) retrospective capital gains tax device. Although this system is equivalent to an accrual method from an ex-ante perspective, it is not on an ex-post basis. As recognized by Auerbach, this causes a fairness problem. To overcome this limitation, we follow Zhu (1992) and design a state-contingent tax rule. As will be proven, state-contingent taxation can modify the risk profile of assets and also ensure ex-post equivalence.

Keywords: capital gains; risk and taxation. (search for similar items in EconPapers)
JEL-codes: H2 H3 (search for similar items in EconPapers)
Date: 2012-06-04
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