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Macroeconomic effects of an equity transaction tax in a general-equilibrium model

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Author Info

  • Lendvai, Julia
  • Raciborski, Rafal
  • Vogel, Lukas

Abstract

The paper studies the impact of an equity transaction tax (ETT) on financial and real variables in a DSGE model with two types of financial frictions: (1) financial intermediaries facing a leverage constraint; (2) noise shocks that lead to the emergence of non-fundamental equity trade. The ETT depresses the demand for equity and hence increases the cost of capital; this then affects firms' investment decisions. In the long run, the tax is found to be as distortive as a corporate income tax. The transaction tax also reduces volatility in financial markets, but the impact on real volatility is limited.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 2 ()
Pages: 466-482

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:2:p:466-482

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Transaction tax; Noise trade; Financial frictions; Cost of capital;

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Cited by:
  1. Rieger, Jörg, 2014. "Financial Transaction Tax and Financial Market Stability with Diverse Beliefs," Working Papers 0563, University of Heidelberg, Department of Economics.

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