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Taxation and Asset Pricing in a Production Economy: Working Paper 2008-10

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  • Maria I. Marika Santoro
  • Chao D. Wei

Abstract

This paper studies the asset pricing implications of dividend and corporate income taxes in a stochastic general equilibrium model with production similar to Jermann (1998). In particular, we ask whether those two types of taxes introduce additional tax-related risk factors in the economy, and how the equity premium may be affected. We find that proportional dividend taxes introduce no additional risk factors and, as a result, have no impact on the equity premium. By contrast, corporate income taxes have strong implications for asset pricing. Key economic variables,

Suggested Citation

  • Maria I. Marika Santoro & Chao D. Wei, 2008. "Taxation and Asset Pricing in a Production Economy: Working Paper 2008-10," Working Papers 20412, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:20412
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    Cited by:

    1. Choi, Paul Moon Sub & Chung, Chune Young & Kim, Dongnyoung, 2020. "Corporate tax, financial leverage, and portfolio risk," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

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