This paper studies the theoretical and quantitative implications of corpo- rate income tax on asset pricing in a two-tree aggregate endowment economy. I ?nd a mechanism through which corporate income tax increases and de- creases ?portfolio risk?associated with rebalancing motive and introduce a new tax-related systematic risk. The tax a¤ects portfolio con?guration, re- lated to ?nancial leverage, and plays an important role in determining price of stock since it generates both stabilization and destabilization on the volatility of return. A higher volatility is associated with a greater co-movement be- tween consumption growth and stock return. Stabiliazation e¤ect dominates destabilization e¤ect, and thus the tax relieve the risk.