Does a Wealth Tax Discriminate Against Domestic Investors?
20 Pages Posted: 25 Nov 2019
Date Written: November 7, 2019
This paper studies the impact of a capital-income tax and a wealth tax on investor behavior in an efficient capital market under various assumptions regarding uncertainty and time horizons. We show that investors who face capital taxes have a lower discount rate, but that their willingness to pay for a company’s stock is not affected by these taxes. In a second step, we show that if a company owner increases her required rate of return from the company because of capital taxes, she will harm the company’s market value and thus her own wealth.
Keywords: capital-income tax, wealth tax, investor behavior
JEL Classification: G10, G12, H20, H25
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