Abstract Analytical work has asserted that the level of investment In a risky asset by a risk-averse individual will normally be greater when a proportional income tax is in effect and less when a progressive tax is in effect (vis-a-vis an environment without income taxes). This paper presents the results of two laboratory. experiments designed to investigate the level of risky asset investment in response to an income tax. The results support the analytical assertions only for the progressive tax. While the level of risky asset Investment shifts significantly, and In the predicted direction, upon a change between a proportional tax and no tax, this effect is only temporary and disappears rapidly. There is no significant difference between a no-tax arid proportional tax scenario over time.
King et al. (Sat,) studied this question.
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