Taxation of Labor Income and the Demand For Risky Assets / Douglas W. Elmendorf, Miles S. Kimball.

Format:

Book

Author/Creator:

Elmendorf, Douglas W.

Contributor:

National Bureau of Economic Research.

Kimball, Miles S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3904.

NBER working paper series no. w3904

Language:

English

Subjects (All):

Taxation.

Human capital.

Investments.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Cambridge, Massachusetts : National Bureau of Economic Research, 1991.

Summary:

The effect of uninsured labor income risk on the joint saving/portfolio composition decision is analyzed using new techniques from the theory of multiple risk-bearing. Applying this analysis, the effect of labor income taxes on the demand for risky securities is considered. It is well known that when private insurance markets are incomplete, the insurance afforded by labor income taxes can reduce overall saving. This paper establishes that - given plausible restrictions on preferences - the insurance afforded by labor income taxes increases the demand for risky securities, even when labor income is statistically independent of the returns to risky securities.

Notes:

Print version record

November 1991.