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Tax-Financed Public Funds Injection into Banks and its Welfare Implications

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  • Ishikawa Daisuke

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    (Graduate School of Economics, Osaka University)

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    Abstract

    I construct a model of a dynamic economy in which the government collects taxes and injects them into banksf capitals for stabilization of financial system. In theoretical part, I derive loan demand and supply functions from dynamic optimizing problems of households and banks. Carrying out a simulation, I show that the injection improves welfare in some first periods, although it rather aggravates in the long term. I also show that the injection induces efficient investments in some first periods, while, it induces inefficient investments in the long term.

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0302.pdf
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    Bibliographic Info

    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 03-02.

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    Length: 24 pages
    Date of creation: Jan 2003
    Date of revision:
    Handle: RePEc:osk:wpaper:03-02

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    Web page: http://www.econ.osaka-u.ac.jp/
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    Related research

    Keywords: Public funds injection; Stabilization of financial system; Welfare analysi;

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    1. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
    2. Elyasiani, Elyas & Kopecky, Kenneth J & VanHoose, David, 1995. "Costs of Adjustment, Portfolio Separation, and the Dynamic Behavior of Bank Loans and Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 955-74, November.
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