A Utility-Based Explanation of Tax Asymmetries

18 Pages Posted: 14 Oct 2011 Last revised: 15 Aug 2013

See all articles by Martin Fochmann

Martin Fochmann

Free University of Berlin; University of Cologne

Martin Jacob

WHU - Otto Beisheim School of Management

Date Written: August 15, 2013


This paper develops a utility-based explanation for the existence of an asymmetric tax treatment of gains and losses when investors are loss averse. We find that loss offset rules should be more restrictive for investors which are (1) more risk averse in case of gains, (2) less risk seeking in case of losses, or (3) more loss averse. Our findings have important policy implications. Tax authorities often implement identical loss offset rules for different investor clienteles. However, when designing loss offset rules, tax authorities should take into account the substantial heterogeneity in risk attitude and loss aversion across different groups of investors.

Keywords: Asymmetric Taxation, Loss Offset Rules, Loss Aversion

JEL Classification: H24, H25, H30

Suggested Citation

Fochmann, Martin and Jacob, Martin, A Utility-Based Explanation of Tax Asymmetries (August 15, 2013). Available at SSRN: https://ssrn.com/abstract=1944044 or http://dx.doi.org/10.2139/ssrn.1944044

Martin Fochmann

Free University of Berlin ( email )

Thielallee 73
Accounting and Taxation
Berlin, 14195

University of Cologne ( email )

Behavioral Accounting/Taxation/Finance
Cologne, 50923

HOME PAGE: http://www.taxation.uni-koeln.de/de/team/prof-dr-martin-fochmann/

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179

HOME PAGE: http://www.whu.edu/steuer

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