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Stochastic Taxation and Asset Pricing in Dynamic General Equilibrium

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  • Clemens Sialm

Abstract

Tax rates have fluctuated considerably since federal income taxes were introduced in the United States in 1913. This paper analyzes the effects of stochastic taxation on asset prices in a dynamic general equilibrium model. Stochastic taxation affects the after-tax returns of both risky and safe assets. Whenever taxes change, bond and equity prices adjust to clear the asset markets. These price adjustments affect assets with long durations, such as equities and long-term bonds, more than short-term assets. Under plausible conditions, investors require higher term and equity premia as compensation for the risk introduced by tax changes.

Suggested Citation

  • Clemens Sialm, 2002. "Stochastic Taxation and Asset Pricing in Dynamic General Equilibrium," NBER Working Papers 9301, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9301
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    Cited by:

    1. Sojli, Elvira & Tham, Wing Wah, 2015. "Divided governments and futures prices," Journal of Econometrics, Elsevier, vol. 187(2), pages 622-633.
    2. Marekwica, Marcel, 2012. "Optimal tax-timing and asset allocation when tax rebates on capital losses are limited," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2048-2063.
    3. Unal, Umut, 2015. "Capital Income Taxation and Welfare under DSGE Framework," MPRA Paper 68416, University Library of Munich, Germany.
    4. Clemens Sialm, 2005. "Tax Changes and Asset Pricing: Time-Series Evidence," NBER Working Papers 11756, National Bureau of Economic Research, Inc.
    5. Pástor, Ľuboš & Veronesi, Pietro, 2013. "Political uncertainty and risk premia," Journal of Financial Economics, Elsevier, vol. 110(3), pages 520-545.
    6. Bryan Kelly & Ľuboš Pástor & Pietro Veronesi, 2016. "The Price of Political Uncertainty: Theory and Evidence from the Option Market," Journal of Finance, American Finance Association, vol. 71(5), pages 2417-2480, October.
    7. Rainer Niemann, 2007. "The Impact of Tax Uncertainty on Irreversible Investment," CESifo Working Paper Series 2075, CESifo Group Munich.
    8. Niemann, Rainer, 2006. "The impact of tax uncertainty on irreversible investment," arqus Discussion Papers in Quantitative Tax Research 21, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. Challe, Edouard & Giannitsarou, Chryssi, 2014. "Stock prices and monetary policy shocks: A general equilibrium approach," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 46-66.
    10. repec:spr:busres:v:11:y:2018:i:1:d:10.1007_s40685-017-0058-7 is not listed on IDEAS
    11. repec:spr:etbull:v:3:y:2015:i:2:d:10.1007_s40505-014-0043-7 is not listed on IDEAS
    12. Thien Nguyen & Lukas Schmid & Howard Kung & Mariano Croce, 2012. "Fiscal Policies and Asset Prices," 2012 Meeting Papers 565, Society for Economic Dynamics.
    13. Ali Chebbi, 2015. "Stochastic growth, taxation policy and welfare cost in an open emerging economy," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 62(1), pages 57-84, March.
    14. Rapp, Marc Steffen & Schwetzler, Bernhard, 2008. "Equilibrium security prices with capital income taxes and an exogenous interest rate," CEFS Working Paper Series 2008-08, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    15. repec:eee:jfinec:v:126:y:2017:i:3:p:689-712 is not listed on IDEAS

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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