Franklin

Risk-Taking and Optimal Taxation with Nontradable Human Capital [electronic resource] Hu, Zuliu.

Author/Creator:
Hu, Zuliu.
Publication:
Washington, D.C. : International Monetary Fund, 1992.
Series:
IMF eLibrary
IMF Working Papers; Working Paper No. 92/105.
IMF Working Papers; Working Paper No. 92/105
Format/Description:
Government document
Book
1 online resource (22 p.)
Local subjects:
Indexed bonds.
Investment performance.
Investment risk.
Labor income.
Market risk.
Moral hazard.
Portfolio choice.
Portfolio choices.
Retirement.
Retirement decision.
Tax rate.
Wage.
Wage subsidy.
Wage tax.
Wages.
Summary:
What are the effects of taxation on individual/entrepreneurs’ risk-taking behavior? This paper re-examines this old question in a continuous time life-cycle model. We demonstrate that the stream of uncertain income from human capital has systematic effects on demand for the risky physical capital asset. If labor supply is inelastic and real wages are known with certainty, then a labor income tax will reduce holdings of the risky physical asset. However, if there are random fluctuations in labor income, then the effect depends on the nature of interaction between wage risk and investment income risk. A labor income tax may actually raise demand for the risky capital asset if human capital risk and physical capital risk are positively correlated. The idiosyncratic risk and nontradability of human capital also have implications for optimal taxation. When the insurance and disincentive effects are jointly taken into account, a Pareto efficient tax structure implies a strictly positive tax rate.
Notes:
Description based on print version record.
Contributor:
Hu, Zuliu.
Other format:
Print Version:
ISBN:
1451947429:
9781451947427
ISSN:
1018-5941
Publisher Number:
10.5089/9781451947427.001
Access Restriction:
Restricted for use by site license.
Location Notes Your Loan Policy
Description Status Barcode Your Loan Policy