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Title:The efficiency loss of capital income taxation under imperfect loss offset provisions PDF Logo
Authors:Ahsan, Syed M.
Tsigaris, Panagiotis
Issue Date:2008
Series/Report no.:CESifo working paper 2203
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 paper develops a framework whereby that investigation can be carried out and utilizes numerical simulations to investigate the size of potential losses. Results show that when the government and private sector are equally efficient in handling market risk, welfare losses owing to the absence of offset provisions could be substantial. Under plausible assumptions about attitudes towards risk and time preference, and with a capital income tax rate of forty percent, over sixty cents per dollar of tax revenue raised would be dissipated. In contrast, full loss offset would reduce that loss to approximately fourteen cents.
Subjects:capital income taxation
uncertainty
deadweight loss
loss offset provisions
JEL:H00
H21
H22
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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