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Is it because risk seeking investors also get some utility from expected return? Yes. It is a common assumption that investors invest to get returns, so in this good space returns are indeed a "good", not a "bad".


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You can think about it from different viewpoints. All answers are true. I'll just try to explain it from another angle. We are on the same page that everybody loves higher returns. The question is whether you also like higher risk or not. Loosely speaking, if you dislike risk, you are risk-averse. Now suppose in the equilibrium (basically what we observe in ...


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Risk aversion measures the degree to which someone prefers a sure thing to a gamble. If people are risk-averse that means they would, all else equal, prefer sure return to risky return, even if the expected return is the same. For example, a risk-averse person would rather invest into an asset that yields \$50 with certainty than in an asset that would have ...


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You are right that these questions have complicated answers, so i will put foward some simpler points that may help understand the situation: Your argument that the capital gains tax is a reallocation of wealth from private to public sector is not wrong, but your conclusion that "the amount of investment in the economy will not change because the ...


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That idea does not work empirically or theoretically. This is not to say that one cannot make some arguments for non-zero capital taxes but not via this channel. Empirically: Capital taxation is actually associated with higher government debt. This is not to say they cause each other rather they are both driven by discount factor of the government (e.g. see ...


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