In the wealth tax chapter Q6, R* and Tcg* formulas are used, I am trying to apply them to Q5, which is a deferred capital gain tax question.
R* = r * (1 - piTi - pdTd - pcgTcg)
Tcg* = Tcg * [(1 - pi - pd - pcg) / (1 - piTi - pdTd - pcgTcg)]
In Q5, there’s only deferred capital gain tax, so the proportion of capital gain tax = 1? In that case, first term in the brackets in Tcg* would equal 0 (1 minus porportion of capital gain tax 1 = 0), so the formula wouldn’t work.
Or, is Tcg* only applied to realized capital gain tax this year and not deferred gains? in which case the proportion would be 0, then the formula works and Tcg* = Tcg?