Richard Posner on the effects of asymmetric personal taxation on the distribution of income

Richard Posner has a very interesting post concerning the effects of asymmetric personal taxation on the distribution of income. Specifically, he argues on the basis of Jensen’s inequality that high marginal personal tax rates discourage risk-taking; it therefore follows that if marginal personal tax rates are reduced (as has been the case over the past several years), such a policy encourages risk-taking by removing some of this asymmetry. In my business risk management course at Baylor University, I make a similar argument concerning how asymmetric corporate taxation creates incentives for firms to hedge risk and in some cases avoid risk altogether. Greg Mankiw also has some interesting points to make concerning Posner’s perspectives on this topic.

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