Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30660
Authors: 
Menoncin, Francesco
Panteghini, Paolo M.
Year of Publication: 
2009
Series/Report no.: 
CESifo working paper 2674
Abstract: 
In this article, we analyze Auerbach's (1991) proposal of a retrospective capital gains tax, which is equivalent to an accrual tax on an ex-ante basis. Using a continuous-time model with stochastic interest rates, we prove that equivalence holds even if the risk-free asset return is correlated with other risky assets' returns. However, equivalence fails to hold on an ex-post basis. In other words, if an investor faces a huge gain (loss), the effective tax rate under this system is less (higher) than that what would be due under an accrual tax system. This leads to a fairness problem. For this reason, we also find the conditions that ensure equivalence on an ex-post basis. As will be shown, however, ex-post equivalence can be achieved only if a huge amount of information is available, making its implementation a hard task.
Subjects: 
capital gains
risk
taxation
JEL: 
H25
H32
Document Type: 
Working Paper

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