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Taxation, Transfer Income and Stock Market Participation

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  • Marcel Fischer
  • Bjarne Astrup Jensen

Abstract

This article studies the impact of a redistributive tax system on consumption, portfolio decisions, and asset prices in a dynamic general equilibrium model. Poorer agents, which receive more in transfers than they pay in taxes, optimally reduce their exposure to equity, because the transfer income they receive is subject to stock market risk. This article thus provides a novel explanation for the low stock market participation rates of poorer investors.

Suggested Citation

  • Marcel Fischer & Bjarne Astrup Jensen, 2015. "Taxation, Transfer Income and Stock Market Participation," Review of Finance, European Finance Association, vol. 19(2), pages 823-863.
    • Handle: RePEc:oup:revfin:v:19:y:2015:i:2:p:823-863.
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    File URL: http://hdl.handle.net/10.1093/rof/rfu008
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    Cited by:

    1. Fischer, Marcel & Jensen, Bjarne Astrup, 2019. "The debt tax shield in general equilibrium," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 151-166.
    2. Alserda, Gosse A.G. & Dellaert, Benedict G.C. & Swinkels, Laurens & van der Lecq, Fieke S.G., 2019. "Individual pension risk preference elicitation and collective asset allocation with heterogeneity," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 206-225.
    3. Pástor, Lˇuboš & Veronesi, Pietro, 2016. "Income inequality and asset prices under redistributive taxation," Journal of Monetary Economics, Elsevier, vol. 81(C), pages 1-20.
    4. Gabe de Bondt & Arne Gieseck & Pablo Herrero & Zivile Zekaite, 2021. "Euro Area Income and Wealth Effects: Aggregation Issues," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(6), pages 1454-1474, December.
    5. Fischer, Marcel & Jensen, Bjarne Astrup, 2017. "The debt tax shield, economic growth and inequality," arqus Discussion Papers in Quantitative Tax Research 219, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Katircioglu, Setareh & Katircioglu, Salih, 2023. "The effects of environmental taxation on stock returns of renewable energy producers: Evidence from Turkey," Renewable Energy, Elsevier, vol. 208(C), pages 311-323.
    7. Kuo-Shing Chen & Chien-Chiang Lee & Huolien Tsai, 2019. "Taxation of Wealthy Individuals, Inequality Governance and Corporate Social Responsibility," Sustainability, MDPI, vol. 11(7), pages 1-23, March.

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