02035cas a2200241 a 4500 AALejournalIMF002123 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451947427 1018-5941 BD-DhAAL BD-DhAAL Hu, Zuliu. Risk-Taking and Optimal Taxation with Nontradable Human Capital / Zuliu Hu. Washington, D.C. : International Monetary Fund, 1992. 1 online resource (22 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students What are the effects of taxation on individual/entrepreneurs' risk-taking behavior? This paper re-examines this old question in a continuous time life-cycle model. We demonstrate that the stream of uncertain income from human capital has systematic effects on demand for the risky physical capital asset. If labor supply is inelastic and real wages are known with certainty, then a labor income tax will reduce holdings of the risky physical asset. However, if there are random fluctuations in labor income, then the effect depends on the nature of interaction between wage risk and investment income risk. A labor income tax may actually raise demand for the risky capital asset if human capital risk and physical capital risk are positively correlated. The idiosyncratic risk and nontradability of human capital also have implications for optimal taxation. When the insurance and disincentive effects are jointly taken into account, a Pareto efficient tax structure implies a strictly positive tax rate. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1992/105 Full text available on IMF http://elibrary.imf.org/view/journals/001/1992/105/001.1992.issue-105-en.xml IMF e-Library