Lund (2002a) showed in a CAPM-type model how tax depreciation schedules affect required expected returns after taxes. Even without leverage, higher tax rates implied lower betas when tax deductions were risk free. Here they are risky, and marginal investment is taxed together with inframarginal...

While rent taxation in some theories is neutral, and the tax rate could not be set to one hundred percent to minimize the need for distortionary taxes, this does not occur in practice. An important reason for this is the transfer incentives that would result. Monitoring to prevent transfer...