TY  - JOUR
AU  - Gordon,Roger H.
AU  - Wilson,John D.
TI  - Measuring the Efficiency Cost of Taxing Risky Capital Income
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1992
PY  - 1990
Y2  - June 1990
UR  - http://www.nber.org/papers/w1992
L1  - http://www.nber.org/papers/w1992.pdf
N1  - Author contact info:
Roger H. Gordon
Department of Economics 0508
University of California, San Diego
9500 Gilman Drive, Dept. 0508
La Jolla, CA 92093
Tel: 858/534-4828
Fax: 858/534-7040
E-Mail: rogordon@ucsd.edu

John Wilson
Bureau of Statistics
Middle Eastern Department, Rm 3-544
700 19th Street, NW
Washington, DC 20431
E-Mail: jwilson@itic.org
AB  - In this paper, we derive a measure of the efficiency cost of taxing risky capital income
in an infinite horizon stochastic model. The resulting measure differs from all those that
have been proposed in the existing literature. It can be represented by the expression
-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.
We 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)).
ER  -