Advances in Management and Applied Economics

A Study of the Optimal Asset Allocation as Raising Taxes on the Rich

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  • Abstract

    We study the effects of introducing taxation in classical continuous-time optimization problems with utility from consumption and optimal asset allocation as taxation on the rich. This paper employs the framework of original Merton's model to a new optimal portfolio selection that consists of a riskless asset as well as a risk asset. The aim of this article is to analyze the portfolio strategies that are adopted a dynamic model of consumption, as the impact on optimal portfolio rules concerns the contribution-hedge strategy. We thus emphasize that the current practice of taxing the rich only is appropriate when trying to reduce the distortions of the taxation system on the portfolio behavior of the investor, and that taxation applied on contributions would be more adapted.