Income taxation, wealth effects, and uncertainty: Portfolio adjustments with isoelastic utility and discrete probability

Theodore S. Sims

Economics Letters, 2015, vol. 135, issue C, 52-54

Abstract: Assuming isoelastic utility and binomial probability, the optimal adjustment to income taxation of portfolio returns is to scale up the holding of the risky asset by just [1+r(1−t)/(1+r)(1−t)], not 1/(1−t), as the literature classically maintains.

Keywords: Taxation and risk; Uncertainty; Portfolio choice; Cash-flow taxation; Income taxation (search for similar items in EconPapers)
JEL-codes: D80 G11 H21 H22 H24 K34 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:135:y:2015:i:c:p:52-54

DOI: 10.1016/j.econlet.2015.07.006

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