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Taxation and investment behaviour under uncertainty — A multiperiod portfolio analysis

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Abstract

This paper deals with the effects of a proportional income tax with full loss offset provisions on optimal investment behaviour under uncertainty. For convenience we only consider investments in two assets: one risky asset with a random rate of return and one riskless asset with a secure rate of return. We shall see that for a certain class of intertemporal preferences the total tax effects on the optimal investment in the risky asset can be separated in a saving effect and a portfolio effect with the former influencing the optimal level of savings and the latter influencing the composition of the optimal savings, i.e., the choice between investments in the risky and riskless asset.

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Authors and Affiliations

  1. Norwegian School of Economics and Business Administration, Norwegian, USA

    Kåre P. Hagen

Authors
  1. Kåre P. Hagen
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Additional information

The author is indebted to Terje Hansen, Jan Mossin and Agnar Sandmo for many helpful comments and suggestions.

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Hagen, K.P. Taxation and investment behaviour under uncertainty — A multiperiod portfolio analysis. Theor Decis 1, 269–295 (1971). https://doi.org/10.1007/BF00139571

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  • DOI: https://doi.org/10.1007/BF00139571

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