We look at the theory of arbitrage with taxation under certainty. The tax scale in our model is not linear. Under the premise that tax scale is convex, we analyze prices that do not exhibit arbitrage opportunities. It turns out that there are two kinds of arbitrage: unbounded as well as bounded...

Incorporating a progressive or convex income tax into valuation problems raises the question of the appropriate tax rate to use in common valuation formulas. We apply arbitrage theory in a riskless, as well as risky, (multi-period) economy to answer this question. It turns out that the...