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Inflation, Tax Rules, and the Stock Market

In: Inflation, Tax Rules, and Capital Formation

  • Martin Feldstein

This paper shows how the interaction of tax rules and expected inflation can decrease substantially the share price per dollar of pretax earnings. The current analysis extends my earlier study [Feldstein (1978)] by recognizing corporate debt, retained earnings, and the role of diverse shareholder investments. As before, the analysis separates household and institutional investors.

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This chapter was published in:
  • Martin Feldstein, 1983. "Inflation, Tax Rules, and Capital Formation," NBER Books, National Bureau of Economic Research, Inc, number feld83-1.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11336.
    Handle: RePEc:nbr:nberch:11336
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Martin Feldstein & Lawrence Summers, 1983. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 116-152 National Bureau of Economic Research, Inc.
    2. Feldstein, Martin, 1980. "Inflation and the Stock Market," American Economic Review, American Economic Association, vol. 70(5), pages 839-47, December.
    3. Martin Feldstein, 1978. "Fiscal Policies, Inflation and Capital Formation," NBER Working Papers 0275, National Bureau of Economic Research, Inc.
    4. Feldstein, Martin S & Green, Jerry & Sheshinski, Eytan, 1979. "Corporate Financial Policy and Taxation in a Growing Economy," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 411-32, August.
    5. Martin Feldstei & Jerry Green & Eytan Sheshinski, 1978. "Inflation and Taxes in a Growing Economy with Debt and Equity Finance," NBER Chapters, in: Research in Taxation, pages 53-70 National Bureau of Economic Research, Inc.
    6. Hong, Hai, 1977. "Inflation and the Market Value of the Firm: Theory and Tests," Journal of Finance, American Finance Association, vol. 32(4), pages 1031-48, September.
    7. Patric H. Hendershott & Sheng Cheng Hu, 1979. "Inflation and the Benefits from Owner-Occupied Housing," NBER Working Papers 0383, National Bureau of Economic Research, Inc.
    8. Feldstein, Martin S & Slemrod, Joel, 1980. "Personal Taxation, Portfolio Choice, and the Effect of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 854-66, October.
    9. Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
    10. Martin Feldstein, 1978. "The Effect of Inflation on the Prices of Land And Gold," NBER Working Papers 0296, National Bureau of Economic Research, Inc.
    11. Motley, Brian, 1969. "Inflation and Common Stock Values: Comment," Journal of Finance, American Finance Association, vol. 24(3), pages 530-35, June.
    12. Patric H. Hendershott, 1979. "The Decline in Aggregate Share Values: Inflation, Taxation, Risk and Profitability," NBER Working Papers 0370, National Bureau of Economic Research, Inc.
    13. James Tobin & William C. Brainard, 1976. "Asset Markets and the Cost of Capital," Cowles Foundation Discussion Papers 427, Cowles Foundation for Research in Economics, Yale University.
    14. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
    15. Alan J. Auerbach, 1980. "Share Valuation and Corporate Equity Policy," NBER Working Papers 0255, National Bureau of Economic Research, Inc.
    16. David F. Bradford, 1979. "The Incidence and Allocation Effects of a Tax on Corporate Distributions," NBER Working Papers 0349, National Bureau of Economic Research, Inc.
    17. Martin Feldstein, 1979. "Adjusting Depreciation in an Inflationary Economy: Indexing versus Acceleration," NBER Working Papers 0395, National Bureau of Economic Research, Inc.
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