We study the optimal taxation of risk-free and excess capital income with heterogeneous rates of return, alongside an … optimal nonlinear earnings tax. Households can hold three assets: one risk-free, one risky but diversifiable, and one a … private investment with idiosyncratic risk whose expected return differs among households. Contrary to expectations, the …

about their own exposure to an aggregate risk factor. In equilibrium, rational investors disagree about asset payoffs: Those … with higher exposure to the risk factor are (endogenously) more optimistic about claims on the risk factor. Thus …, information asymmetry limits risk sharing and trading volumes. Moreover, uncertainty about exposure amplifies the effect of …