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Francesco Menoncin and Paolo M. Panteghini
''Ex-Post Equivalence under Capital Gains Taxation''
( 2012, Vol. 32 No.2 )
In this article, we analyze a state-contingent tax on capital gains. We start by focusing on Auerbach's (1991) retrospective capital gains tax device. Although this system is equivalent to an accrual method from an ex-ante perspective, it is not on an ex-post basis. As recognized by Auerbach, this causes a fairness problem. To overcome this limitation, we follow Zhu (1992) and design a state-contingent tax rule. As will be proven, state-contingent taxation can modify the risk profile of assets and also ensure ex-post equivalence.
Keywords: capital gains, risk and taxation.
JEL: H2 - Taxation, Subsidies, and Revenue: General
H3 - Fiscal Policies and Behavior of Economic Agents: General
Manuscript Received : Oct 11 2011 Manuscript Accepted : Jun 04 2012

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