In this paper we examine when a pure CF-tax (proportional ad valorem) is neutral in a general equilibrium framework.
Sufficient conditions for neutrality are linear utility, with CRRA as an exception if all income is subjected to the same CF-tax-rate.
We find that the direction of the effect from a CF-tax on investments is in general ambiguous, depending on the level of non-taxable income and preferences.
Under sufficiently high levels of risk-aversion we show that an equilibrium with CF-taxation will contain more risky investments.
https://www.kristiania.no/en/about-kristiania/employees/school-of-economics-innovation-and-technology/school-eit-faglig/jonas-hamang/
