Risky Taxes, Budget Balance Preserving Spreads and Precautionary Savings

Torbjörn Becker

No 73, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: The paper analyzes the effects on consumption from changes in the riskiness of taxes. It starts by reinterpreting the Sandmo [1970] paper on general capital income risk to the case of risky capital taxation. In his framework the concept of a mean preserving spread (MPS) is used for the risk analysis. In connection with risky taxes it is however possible to explicitly connect the tax risk with the government's budget constraint. In this paper the concept of a budget balance preserving spread (BBPS) is developed and used for the analysis of stochastic taxes. The paper is concluded with a comparison of the effects that a MPS and a BBPS has on consumption decisions. It is shown that the comparative statics results for a BBPS could be different from the results obtained with a MPS.

Keywords: Tax risk; precautionary savings (search for similar items in EconPapers)
JEL-codes: D81 E2 E21 H31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 1995-10
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://swopec.hhs.se/hastef/papers/hastef0073.ps (application/postscript)
http://swopec.hhs.se/hastef/papers/hastef0073.ps.zip (application/postscript)
http://swopec.hhs.se/hastef/papers/hastef0073.pdf (application/pdf)
http://swopec.hhs.se/hastef/papers/hastef0073.pdf.zip (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0073

Access Statistics for this paper

More papers in SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Helena Lundin ().