Do Taxes Matter in the CAPM?

BuR Business Research Journal, Vol. 2, No. 2, December 2009

8 Pages Posted: 12 Mar 2010  

Lutz Kruschwitz

Free University of Berlin (FUB) - Department of Business and Economics

Andreas Loeffler

Freie Universität Berlin

Date Written: March 11, 2010

Abstract

The traditional literature on the CAPM assumes that investor's tax payments simply vanish from the model. This assumption is not at all consistent with the actual behavior of the Treasury. The theory of general equilibrium states that an interest rate rf = 0 will not affect prices if taxes are introduced. We show that this result can be extended to the CAPM if the tax payments are redistributed among investors.

Keywords: CAPM, Tax-CAPM, equilibrium, taxes, CARA utility

Suggested Citation

Kruschwitz, Lutz and Loeffler, Andreas, Do Taxes Matter in the CAPM? (March 11, 2010). BuR Business Research Journal, Vol. 2, No. 2, December 2009. Available at SSRN: https://ssrn.com/abstract=1568702

Lutz Kruschwitz (Contact Author)

Free University of Berlin (FUB) - Department of Business and Economics ( email )

Boltzmannstrasse 20
D-14195 Berlin, 14195
Germany
+49 30 838-54631 (Phone)
+49 30 838-54468 (Fax)

Andreas Loeffler

Freie Universität Berlin ( email )

Boltzmannstr. 20
Berlin, 14195
Germany

HOME PAGE: http://www.andreasloeffler.de

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