Flow Taxes, Stock Taxes, and Portfolio Choice: A Generalised Neutrality Result

Battle Count: 52

The paper is primarily a tax policy and portfolio theory paper rather than a trading strategy paper. However, it is relevant to quantitative trading in several ways: (1) it establishes conditions under which tax systems do NOT distort portfolio composition, which is important for tax-aware portfolio optimization; (2) it quantifies portfolio tilts from non-uniform wealth tax assessment (1.7-25 percentage points), which affects asset allocation decisions; (3) the pass-through factor k≈0.485 and its amplification of liquidity needs are relevant for tax-aware execution; (4) the market impact channel under forced selling is relevant for algorithmic execution; (5) the equity-debt allocation distortion affects fixed-income vs equity allocation. The Fokker-Planck framework itself is a stochastic process tool applicable to quantitative finance.

The theoretical framework requires understanding of stochastic calculus (Itô diffusions, Fokker-Planck equations), portfolio theory (Markowitz, Merton, CRRA), and tax law (Norwegian dual income tax). Implementing the neutrality conditions requires computing assessment fractions across asset classes, verifying rate equalities, and calculating drift modifications. The calibration to Norwegian parameters is straightforward but requires current tax law knowledge. The symmetry-breaking analysis and additive separability proofs are mathematically involved. No code is provided, and the paper is purely analytical.

The paper is fully analytical with all derivations provided. However, it is a theoretical paper with no code repository, no empirical dataset, and calibration relies on publicly available Norwegian tax parameters (Skatteetaten, NOU reports). The mathematical proofs are self-contained and verifiable. The author acknowledges AI assistance for typesetting and proof checking. No computational experiments or simulations are provided.