02142cam a22002897 4500001000600000003000500006005001700011008004100028100002100069245012400090260006600214490004100280500001700321520009300338520009500431520009100526520051400617520034101131530006101472538007201533538003601605700002001641710004201661830007601703856003701779856003601816w1992NBER20170225105837.0170225s1986 mau||||fs|||| 000 0 eng d1 aGordon, Roger H.10aMeasuring the Efficiency Cost of Taxing Risky Capital Incomeh[electronic resource] /cRoger H. Gordon, John D. Wilson. aCambridge, Mass.bNational Bureau of Economic Researchc1986.1 aNBER working paper seriesvno. w1992 aAugust 1986.3 aIn this paper, we derive a measure of the efficiency cost of taxing risky capital income3 ain an infinite horizon stochastic model. The resulting measure differs from all those that3 ahave been proposed in the existing literature. It can be represented by the expression3 a-sigma(s) T(s)c(deltaX(s)), where T(s) measures the present value of the taxes that would be paid on a unit of investment in a riskless project with the same expected depreciation rate and tax treatment as capital invested in period s, X(s), while c(X(s)) represents the certainty equivalent to the representative individual of the lottery where measures the ex post change in investment in period s due to the tax change. The paper then compares this measure with others that have appeared in the literature.3 aWe were unable to find support for the argument in Bulow-Suinmers(1984) that the efficiency cost of taxing risky capital income is much larger than that implied by the measure -sigma(s)T(s)E(deltaX(s)). In fact, we show in special cases that our measure implies a smaller efficiency cost than does the measure -sigma(s)T(s)E(deltaX(s)). aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aWilson, John D.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w1992.4 uhttp://www.nber.org/papers/w199241uhttp://dx.doi.org/10.3386/w1992