Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/155539 
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper No. 6297
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
optimal capital taxation
rate of return allowance
JEL: 
H21
H23
H24
Document Type: 
Working Paper
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