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Capital income taxation with portfolio choice

Identifikátory výsledku

  • Kód výsledku v IS VaVaI

    <a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F20%3A00532762" target="_blank" >RIV/67985998:_____/20:00532762 - isvavai.cz</a>

  • Výsledek na webu

    <a href="https://www.cerge-ei.cz/pdf/wp/Wp668.pdf" target="_blank" >https://www.cerge-ei.cz/pdf/wp/Wp668.pdf</a>

  • DOI - Digital Object Identifier

Alternativní jazyky

  • Jazyk výsledku

    angličtina

  • Název v původním jazyce

    Capital income taxation with portfolio choice

  • Popis výsledku v původním jazyce

    This paper analyzes redistributional and macroeconomic effects of differential taxation of financial assets with a different risk levels. The redistributive effect stems from the fact that various households hold portfolios with a starkly different risk levels. In particular, poor households primarily save in safe assets, while rich households often invest a substantially higher share of their wealth in (risky) equity. At the same time, equity and safe assets are often taxed at different rates in many tax codes. This is primarily because investments in equity (which are relatively riskier) are taxed both as corporate and personal income, unlike debt, which is tax deductible for corporations. This paper firstly builds a simple theoretical two-period model which shows that the optimal tax wedge between risky and safe assets is increasing in the underlying wealth inequality. Furthermore, I build a quantitative model with a continuum of heterogeneous agents, parsimonious life-cycle, borrowing constraint, aggregate shocks and uninsurable idiosyncratic shocks, in which the government raises revenue by using linear taxes on risky and safe assets. Simulations of quantitative models shows that elimination of differential asset taxation leads to a welfare loss equivalent to a 0.3% permanent reduction in consumption. I find that the optimal tax wedge between taxes on equity and debt is higher than the one in the U.S. tax code.n

  • Název v anglickém jazyce

    Capital income taxation with portfolio choice

  • Popis výsledku anglicky

    This paper analyzes redistributional and macroeconomic effects of differential taxation of financial assets with a different risk levels. The redistributive effect stems from the fact that various households hold portfolios with a starkly different risk levels. In particular, poor households primarily save in safe assets, while rich households often invest a substantially higher share of their wealth in (risky) equity. At the same time, equity and safe assets are often taxed at different rates in many tax codes. This is primarily because investments in equity (which are relatively riskier) are taxed both as corporate and personal income, unlike debt, which is tax deductible for corporations. This paper firstly builds a simple theoretical two-period model which shows that the optimal tax wedge between risky and safe assets is increasing in the underlying wealth inequality. Furthermore, I build a quantitative model with a continuum of heterogeneous agents, parsimonious life-cycle, borrowing constraint, aggregate shocks and uninsurable idiosyncratic shocks, in which the government raises revenue by using linear taxes on risky and safe assets. Simulations of quantitative models shows that elimination of differential asset taxation leads to a welfare loss equivalent to a 0.3% permanent reduction in consumption. I find that the optimal tax wedge between taxes on equity and debt is higher than the one in the U.S. tax code.n

Klasifikace

  • Druh

    O - Ostatní výsledky

  • CEP obor

  • OECD FORD obor

    50202 - Applied Economics, Econometrics

Návaznosti výsledku

  • Projekt

  • Návaznosti

    I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Ostatní

  • Rok uplatnění

    2020

  • Kód důvěrnosti údajů

    S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů