TY  - JOUR
AU  - Elmendorf,Douglas W.
AU  - Kimball,Miles S.
TI  - Taxation of Labor Income and the Demand For Risky Assets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3904
PY  - 1991
Y2  - November 1991
UR  - http://www.nber.org/papers/w3904
L1  - http://www.nber.org/papers/w3904.pdf
N1  - Author contact info:
Douglas Elmendorf
Director, Congressional Budget Office
Congressional Budget Office
Ford House Office Building, 4th Floor
Second and D Streets, SW
Washington, DC 20515
E-Mail: doug.elmendorf@cbo.gov

Miles S. Kimball
Department of Economics
University of Michigan
Ann Arbor, MI  48109-1220
Tel: 734/764-2375
Fax: 734/764-2769
E-Mail: mkimball@umich.edu
AB  - The effect of uninsured labor income risk on the joint saving/portfolio composition decision is analyzed using new techniques from the theory of multiple risk-bearing. Applying this analysis, the effect of labor income taxes on the demand for risky securities is considered. It is well known that when private insurance markets are incomplete, the insurance afforded by labor income taxes can reduce overall saving. This paper establishes that - given plausible restrictions on preferences - the insurance afforded by labor income taxes increases the demand for risky securities, even when labor income is statistically independent of the returns to risky securities.
ER  -