On capital formation and the effects of capital income taxation

Abstract: How should a tax on realized capital gains be designed in order to yield the same revenue and the same impacts on savings and portfolio choice as a tax on current income? Should income from risky investments be taxed at a higher or lower rate than income from assets without risk? How is the capital structure and the dividend policy of firms determined in the presence of taxes and what are the effects of tax differentials on the debt ratio, on the dividend policy, on the capial intensity, on the willingness to take nonfinancial risks and on the welfare of workers and investors?These and related questions are analyzed in this dissertation, which uses models based on the theory of neoclassical economics and the theory of finance. As background, a comprehensive presentation is given of the theory of savings, investment and portfolio choice. The general effects of capital income taxes on housholds and firms are also analyzed.