Tax-Financed Public Funds Injection into Banks and its Welfare Implications
I construct a model of a dynamic economy in which the government collects taxes and injects them into banksf capitals for stabilization of financial system. In theoretical part, I derive loan demand and supply functions from dynamic optimizing problems of households and banks. Carrying out a simulation, I show that the injection improves welfare in some first periods, although it rather aggravates in the long term. I also show that the injection induces efficient investments in some first periods, while, it induces inefficient investments in the long term.
|Date of creation:||Jan 2003|
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- Kiyotaki, Nobuhiro & Moore, John, 1997.
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