A note on capital asset pricing and heterogeneous taxes

In this paper, we present a stylized model where we show how asset prices, i.e., required expected rates of returns, may be characterized in a world with heterogeneous asset taxes. Within a simple CAPM-like framework, we derive an after-tax beta equal to the pre-tax beta multiplied by a (non-obvious) asset specific tax adjustment. We further show in what sense the Security Market Line here can be replaced by a Security Market Fan. Well-known CAPM relations are obtained as special cases, and policy implications are analyzed.