Decision-theoretic analysis of envisaged income tax reforms for FRG and USA

There are essentially two alternatives to analyse the impacts of tax reform proposals on risk-taking: the two-asset model and the certainty equivalent approach. Here risk-taking is defined in terms of the certainty equivalent approach. The paper discusses the effects of current tax reform proposals in the Federal Republic of Germany and in the United States with respect to risk-taking. Among others it is shown that there are unambiguous effects of the reform proposals as far as the upper income class is considered. Furthermore, the paper studies some impacts of the transition from the FRG-schedule T88 (coming into force at the beginning of 1988) to an intended schedule characterized by a linearly increasing marginal tax rate.