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Capital Trading, Stock Trading, and the Inflation Tax on Equity

  • Ralph Chami

    (IMF Institute)

  • Thomas F. Cosimano

    (Department of Finance and Business Economics, University of Notre Dame)

  • Connel Fullenkamp

    (Department of Economics, Duke University)

A market for used capital goods, or financial instruments that represent the ownership of the used capital goods, induces inflation taxes on wealth and on the nominal income flows they provide. This paper explicitly introduces trading in either used capital goods or financial instruments into the standard stochastic growth model with money and production. These two monetary economies are equivalent. The value of the firm is equal to the firm's capital stock divided by inflation. The resulting asset pricing conditions indicate that the effect of inflation on asset returns differs from the effects found in the literature by the addition of a significant wealth tax. (Copyright: Elsevier)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 4 (2001)
Issue (Month): 3 (July)
Pages: 575-606

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Handle: RePEc:red:issued:v:4:y:2001:i:3:p:575-606
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