On valuation before and after tax in no arbitrage models: Tax neutrality in the continuous time model
نویسنده
چکیده
We establish necessary and sufficient conditions for a linear taxation system to be neutral − within the continuous-time “no arbitrage” model − in the sense that asset valuation is invariant to the process for tax rates and choice of realization dates as well as immune to timing options attempting to twist the time profile of taxable income through wash sale transactions. We also demonstrate that despite neutrality the portfolio choice can be quite different across investors subject to different tax rates.
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