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The Welfare Effects of the Reagan Deficits: A Portfolio Choice Approach

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  • Michael Ben-Gad

Abstract

I analyze the incidence of U.S. fiscal policy using a two-period, general equilibrium portfolio choice model with imperfect capital markets. Using data from the 1983--89 Panel Survey of Consumer Finances, I divide the population into three groups according to their 1982 portfolio choices and calculate average tax rates for each class of asset holders. Compared to the counterfactual of constant tax rates, the high deficits of the 1980 s harmed the welfare of two large minorities concentrated in both the higher- and lower-income groups, but benefited the majority whose income fell largely in the middle of the income distribution. (JEL H22, H62, G11) Copyright 2004, Oxford University Press.

Suggested Citation

  • Michael Ben-Gad, 2004. "The Welfare Effects of the Reagan Deficits: A Portfolio Choice Approach," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 441-454, July.
  • Handle: RePEc:oup:ecinqu:v:42:y:2004:i:3:p:441-454
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    File URL: http://hdl.handle.net/10.1093/ei/cbh072
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    Cited by:

    1. Yunker, James A. & Melkumian, Alla A., 2010. "The effect of capital wealth on optimal diversification: Evidence from the Survey of Consumer Finances," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 90-98, February.

    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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