Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 8, 2023 erstellt
Description:
Capital gains tax significantly affects investors' optimal investment policies. Inflation varies stochastically and can become elevated for a long period of time. However, the impact of inflation on tax timing and consumption is largely ignored in the existing literature. We develop an optimal tax-timing model with regime switching to study such an impact. We show that a rise in the inflation rate or the inflation risk decreases consumption, but increases the dollar amount invested and the tax paid. A negative correlation between inflation and the stock market return lowers both stock investment and consumption. In addition, the interaction between inflation and capital gains tax is important. Misestimating inflation or ignoring capital gains tax can result in a large welfare loss. Moreover, the long-proposed capital gains tax indexation for inflation could raise stock investment and increase total tax payment