Heterogeneous Returns and Wealth Tax Neutrality: A Fokker-Planck Framework
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arXiv
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| Format: | Preprint |
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2026
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| _version_ | 1866915940102307840 |
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| author | Frøseth, Anders G |
| author_facet | Frøseth, Anders G |
| contents | We extend the Fokker-Planck framework of Froseth (2026, arXiv:2603.05283) to populations of investors with heterogeneous, persistent return-generating ability. When the drift coefficient in the Langevin equation for log-wealth varies across investors, the proportional wealth tax remains a uniform drift shift but ceases to be neutral in the economic sense: its real incidence differs across ability types, and the stationary wealth distribution changes shape. We derive the extended Fokker-Planck equation on the joint space of log-wealth and ability, characterise the conditions under which the drift-shift symmetry breaks, and identify the consequences for asset prices and portfolio allocations. The analysis connects the neutrality results of Froseth (2026, arXiv:2603.05264) and the Fokker-Planck dynamics of Froseth (2026, arXiv:2603.05283) to the heterogeneous-returns literature, notably the "use-it-or-lose-it" mechanism of Guvenen, Kambourov, Kuruscu, Ocampo-Diaz and Chen (2023). |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2603_16006 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Heterogeneous Returns and Wealth Tax Neutrality: A Fokker-Planck Framework Frøseth, Anders G Physics and Society General Economics Economics Portfolio Management We extend the Fokker-Planck framework of Froseth (2026, arXiv:2603.05283) to populations of investors with heterogeneous, persistent return-generating ability. When the drift coefficient in the Langevin equation for log-wealth varies across investors, the proportional wealth tax remains a uniform drift shift but ceases to be neutral in the economic sense: its real incidence differs across ability types, and the stationary wealth distribution changes shape. We derive the extended Fokker-Planck equation on the joint space of log-wealth and ability, characterise the conditions under which the drift-shift symmetry breaks, and identify the consequences for asset prices and portfolio allocations. The analysis connects the neutrality results of Froseth (2026, arXiv:2603.05264) and the Fokker-Planck dynamics of Froseth (2026, arXiv:2603.05283) to the heterogeneous-returns literature, notably the "use-it-or-lose-it" mechanism of Guvenen, Kambourov, Kuruscu, Ocampo-Diaz and Chen (2023). |
| title | Heterogeneous Returns and Wealth Tax Neutrality: A Fokker-Planck Framework |
| topic | Physics and Society General Economics Economics Portfolio Management |
| url | https://arxiv.org/abs/2603.16006 |