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Tax Reform and Financial Markets

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  • Patric H. Hendershott

Abstract

Four tax reform proposals have been advanced in recent years: Bradley-Gephardt, Kemp-Kasten, Treasury-Department and the Administration plan. These plans could have significant impacts on financial markets. Reductions ininvestment incentives and marginal tax rates would tend to lower before-tax interest rates, and lower taxes on existing corporate capital would tend to increase stock prices. The pattern of security issues would be altered by resulting changes in the composition of investment between real estate and nonreal estate assets and in desired loan-to-value ratios. The paper compares and contrasts the likely impacts of each of the four reform proposals on interest rate (taxable and tax-exempt), security flows, and stock prices.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1707.

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Date of creation: Sep 1985
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Publication status: published as Patric H. Hendershott, 1985. "Tax reform and financial markets," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 29, pages 153-186.
Handle: RePEc:nbr:nberwo:1707

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  1. Martin Feldstein & Lawrence H. Summers, 1979. "Inflation, Tax Rules, and the Long Term Interest Rates," NBER Working Papers 0232, National Bureau of Economic Research, Inc.
  2. Brainard, William C. & Shoven, John B., 1980. "The financial valuation of the return to capital," Proceedings, Federal Reserve Bank of San Francisco, issue 4, pages 43-104.
  3. Feldstein, M., 1980. "Inflation, tax rules, and the prices of land and gold," Journal of Public Economics, Elsevier, vol. 14(3), pages 309-317, December.
  4. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
  5. Joe Peek & James A. Wilcox, 1984. "The Degree of Fiscal Illusion in Interest Rates: Some Direct Estimates," NBER Working Papers 1358, National Bureau of Economic Research, Inc.
  6. Patric H. Hendershott, 1985. "Tax Reform, Interest Rates and Capital Allocation," NBER Working Papers 1708, National Bureau of Economic Research, Inc.
  7. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September.
  8. Alan J. Auerbach & Lawrence Kotlikoff, 1982. "Investment Versus Savings Incentives: The Size of the Bang for the Buck and the Potential for Self-Financing Business Tax Cuts," Cowles Foundation Discussion Papers 652, Cowles Foundation for Research in Economics, Yale University.
  9. William C. Brainard & John B. Shoven & Laurence Weiss, 1980. "The Financial Valuation of the Return to Capital," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 453-512.
  10. Constantinides, George M. & Ingersoll, Jonathan Jr., 1984. "Optimal bond trading with personal taxes," Journal of Financial Economics, Elsevier, vol. 13(3), pages 299-335, September.
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Cited by:
  1. Patric H. Hendershott & David C. Ling, 1985. "The Administration Tax Reform Proposal and Housing," NBER Working Papers 1740, National Bureau of Economic Research, Inc.
  2. Thomas Downs & Patric H. Hendershott, 1986. "Tax Policy and Stock Prices," NBER Working Papers 2094, National Bureau of Economic Research, Inc.

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