Uninsurable Investment Risks and Capital Income Taxation

Cesaire Meh and Yaz Terajima

Staff Working Papers from Bank of Canada

Abstract: This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks. It has been shown that, with uninsurable investment risks, under-accumulation of capital may result compared to the complete markets economy. We show that reducing somewhat the capital income tax rate increases the capital stock and leads to a welfare gain. The complete elimination of the capital income tax, however, is not necessarily welfare improving.

Keywords: Economics; models (search for similar items in EconPapers)
JEL-codes: E21 E22 E62 G32 H24 H25 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (2)

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Journal Article: Uninsurable investment risks and capital income taxation (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:09-3

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