The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions

Syed Ahsan (syed.ahsan@concordia.ca) and Panagiotis Tsigaris (ptsigaris@tru.ca)

Public Finance Review, 2009, vol. 37, issue 6, 710-731

Abstract: The importance of capital loss offset provisions in a world of risk is well documented in the tax literature. However, the potential deadweight losses owing to imperfect offset has not been fully explored. This article develops a framework, whereby that investigation can be carried out, and uses numerical simulations to investigate the size of potential losses. The results obtained show that welfare losses owing to the absence of offset provisions could be substantial. Under plausible assumptions about attitudes toward risk and time preference, and with a capital income tax rate of 35 percent, over forty-five cents per dollar of tax revenue raised may be dissipated. In contrast, full loss offset may reduce that loss to approximately twelve cents.

Keywords: capital income taxation under uncertainty; deadweight loss; loss offset provisions (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (6)

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Working Paper: The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:37:y:2009:i:6:p:710-731

DOI: 10.1177/1091142109345263

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