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Inflation, Tax Rules, and the Stock Market

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  • Martin Feldstein

Abstract

This paper shows how the interaction of tax rules and expected inflation can decrease substantially the share price per dollar of pretax earnings. The current analysis extends my earlier study [Feldstein (1978)] by recognizing corporate debt, retained earnings, and the role of diverse shareholder investments. As before, the analysis separates household and institutional investors.

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File URL: http://www.nber.org/papers/w0403.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0403.

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Date of creation: Nov 1979
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Publication status: published as Martin Feldstein. "Inflation, Tax Rules, and the Stock Market," in "Inflation, Tax Rules, and Capital Formation" University of Chicago Press (1983)
Handle: RePEc:nbr:nberwo:0403

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  1. Martin Feldstein & Joel Slemrod, 1980. "Personal Taxation, Portfolio Choice and The Effect of the Corporation Income Tax," NBER Working Papers 0241, National Bureau of Economic Research, Inc.
  2. Martin Feldstein & Lawrence Summers, 1983. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 116-152 National Bureau of Economic Research, Inc.
  3. Sheshinski, Eytan & Feldstein, Martin & Green, Jerry & Auerbach, Alan, 1978. "Inflation and Taxes in a Growing Economy with Debt and Equity Finance," Scholarly Articles 3203645, Harvard University Department of Economics.
  4. Feldstein, Martin, 1980. "Fiscal Policies, Inflation, and Capital Formation," American Economic Review, American Economic Association, vol. 70(4), pages 636-50, September.
  5. Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
  6. Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198 National Bureau of Economic Research, Inc.
  7. Martin Feldstein, 1978. "The Effect of Inflation on the Prices of Land And Gold," NBER Working Papers 0296, National Bureau of Economic Research, Inc.
  8. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
  9. Feldstein, Martin S & Green, Jerry & Sheshinski, Eytan, 1979. "Corporate Financial Policy and Taxation in a Growing Economy," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 411-32, August.
  10. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
  11. Hong, Hai, 1977. "Inflation and the Market Value of the Firm: Theory and Tests," Journal of Finance, American Finance Association, vol. 32(4), pages 1031-48, September.
  12. James Tobin & William C. Brainard, 1976. "Asset Markets and the Cost of Capital," Cowles Foundation Discussion Papers 427, Cowles Foundation for Research in Economics, Yale University.
  13. Alan J. Auerbach, 1980. "Share Valuation and Corporate Equity Policy," NBER Working Papers 0255, National Bureau of Economic Research, Inc.
  14. Martin Feldstein, 1981. "Adjusting Depreciation in an Inflationary Economy: Indexing versus Acceleration," NBER Working Papers 0395, National Bureau of Economic Research, Inc.
  15. Motley, Brian, 1969. "Inflation and Common Stock Values: Comment," Journal of Finance, American Finance Association, vol. 24(3), pages 530-35, June.
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