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An Effect of the New Tax on Common Stock in Sweden
The Swedish Journal of Economics
Vol. 69, No. 3 (Sep., 1967), pp. 196-207
Stable URL: http://www.jstor.org/stable/3439091
Page Count: 12
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The effect of taxes on risk taking in society has been dealt with by different authors using various assumptions about how individuals make decisions under risk. Usually the effect of a linear tax is studied and the results obtained indicate that risk taking will increase as a result of a higher tax. An analysis of the effect of the new tax on common stock in Sweden poses some new theoretical problems. 1. The tax is a combination of a linear tax and an excise tax. The effect of such a tax must be found. 2. Since the increased tax is imposed on the stock market alone, we have to treat investments in the stock market differently than other assets, from the point of view of taxes. The analysis is made by using a quadratic utility function and maximizing expected utility. The major result is that investors who intend to hold their assets during a relatively short period will leave the stock market while those who intend to keep them during a relatively long period of time will move into the stock market.
The Swedish Journal of Economics © 1967 The Scandinavian Journal of Economics