The Optimal Taxation of Risky Capital Income: The Rate of Return Allowance

Kevin Spiritus and Robin Boadway

No 6297, CESifo Working Paper Series from CESifo

Abstract: We study the optimality of taxing capital income according to a Rate-of-Return Allowance proposed by the Mirrlees Review. In a mean-variance framework the optimal tax on risk-free returns is zero with constant returns to scale in private investment, but positive with decreasing returns to scale, and vice versa. The optimal tax rate on excess returns to risky assets is positive if the stochastic tax revenue is returned to the household by variable public good provision. If it is returned as a stochastic lump sum, the optimal tax on excess returns is irrelevant with only aggregate risk, and approaches 100 % if there is also idiosyncratic risk.

Keywords: optimal capital taxation; rate of return allowance (search for similar items in EconPapers)
JEL-codes: H21 H23 H24 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-acc and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: The Optimal Taxation of Risky Capital Income: The Rate of Return Allowance (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6297

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