文档介绍：Commen ts W e
Optimal Consumption and In v estmen t
with Capital Gains T axes
Rob ert M. Dammon Chester S. Spatt Harold H. Zhang
Graduate Sc ho ol of Industrial Administration
Carnegie Mellon Univ ersit y
First Draft: August 1998
Last Revised: June 15, 1999
W e thank e Constan tinides, Mic hael Gallmey er, and participan ts at presen tations at Carnegie
Mellon Univ ersit y , the Univ ersit y of British Colum bia, and the 1999 American Economic Asso ciation
meetings in New Y ork for men ts. Financial supp ort pro vided b y the T eac hers Insurance
Ann uit y Asso ciation|College Retiremen t Equities F und, the Carnegie Mellon Univ ersit yF acult y De-
v elopmen tF und and its Financial Researc h Cen ter is gratefully ac kno wledged. P art of this pap er w as
written during the summer of 1998, while Rob ert M. Dammon w as a visiting researc h professor at UBC.
Abstract
This pap er examines the optimal dynamic consumption, in v estmen t, and liquidation decisions of
a risk-a v erse in v estor in the presence of capital gains taxes and short-sale restrictions. The in v estor
allo cates his w ealth b et w een a riskless, one-p erio d b ond and a risky sto c k. T o main tain tractabilit y ,
w e assume that the in v estor's tax basis for the risky asset is equal to the w eigh ted a v erage purc hase
price. Our n umerical results indicate that the optimal consumption{w ealth ratio is lo w er with taxes and
increasing in the basis{price ratio. The incen tiv e to sell assets with em b edded capital gains in order
to div ersify is in v ersely related to the size of the gain and the age of the in v estor. The in v estor's age
pla ys an imp ortan t role in the optimal realization decision b ecause, under the curren t . tax co de, all
unrealized capital gains and losses are treated as tax-exempt at the time of death. This fa v orable tax
treatmen t a orded capital gains at death increases the v alue of the option to realize losses and defer
gain