Optimal Taxation of Normal and Excess Returns to Risky Assets

We study the optimal taxation of risk-free and excess capital income with heterogeneous rates return, alongside an nonlinear earnings tax. Households can hold three assets: one risk-free, risky but diversifiable, a private investment idiosyncratic risk whose expected return differs among households. Contrary to expectations, tax on returns assets is ineffective for redistribution, because its effects are annulled by Domar-Musgrave effect. It assumes only insurance role, positive. The does fulfill redistributive insofar reveal information about investors' types beyond what revealed base. takes standard Mirrleesian form amended take account stochasticity revenue.