English, Article, Journal or magazine article edition: Retrospective Capital Gains Taxation in the Real World Francesco Menoncin; Paolo Panteghini

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Bookmark: http://trove.nla.gov.au/version/147740
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Retrospective Capital Gains Taxation in the Real World
Author
  • Francesco Menoncin
  • Paolo Panteghini
Physical Description
  • preprint
Notes
  • 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.
  • capital gains, risk, taxation
  • RePEc:ces:ceswps:_2674
Language
  • English
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