According to Nobel Laureate Ed Prescott, "increasing tax rates [in Europe] will not increase

- The personal income tax excludes the imputed rent from owner-occupied housing from taxation. This increases both the percentage of those choosing to own their bomes and the quantity of owner-occupied housing.

- The theoretical effects of taxation on porfolio composition are ambiguous. Taxes reduce the expected return on a risky asset but also lessen its riskiness. The net effect of these conflicting tendencies has not been empirically resolved.

revenue" [Prescott, 2004b]. What assumptions must hold in order for this statement to be correct?