Risky assets and the choice of tax base

Using a two-period model in which income is earned in the first period and saving can be invested in a risky asset, the authors explore the implicatio ns of the wealth tax and the consumption tax approaches for both the govern ment and the wage earner. Settings under which decisions are made through M arshallian utility functions and settings under which decisions are made th rough von Neumann-Morgenstern risk preference functions are clarified. This is an issue that has suffered from benign neglect in this literature. Ii i s shown that the implications of uncertainty for tax policy are much greate r than has hitherto been implied.