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The Taxation of Risky Assets

Jeremy I. Bulow^1,2; Lawrence H. Summers^1,3

¹ National Bureau of Economic Research · ² Stanford University · ³ Harvard University

This paper reconsiders the effects of taxation on risky assets, recognizing the importance of variations in asset prices. We show that earlier analyses which assumed that depreciation rates are constant and that the future price of capital goods is known with certainty are very misleading, as guides to the effects of corporate taxes. We then examine the concept of economic depreciation in a risky environment, and show that depreciation allowances, if set ex-ante, should be adjusted to take account of future asset price risk. Some empirical calculations suggest that these adjustments are large, and have important implications for the burdens of, and non-neutralities in, the corporate income tax.

DOI

10.1086/261206

Volume

92 (1)

Pages

20-39

Language

en

Export

BibTeX

Sources

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