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Tax-Financed Public Funds Injection into Banks and its Welfare Implications

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  • Ishikawa Daisuke

    (Graduate School of Economics, Osaka University)

Abstract

I construct a model of a dynamic economy in which the government collects taxes and injects them into banks f 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.

Suggested Citation

  • Ishikawa Daisuke, 2003. "Tax-Financed Public Funds Injection into Banks and its Welfare Implications," Discussion Papers in Economics and Business 03-02, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:03-02
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0302.pdf
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    References listed on IDEAS

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    1. Hiroshi Osano & Toshiaki Tachibanaki (ed.), 2001. "Banking, Capital Markets and Corporate Governance," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-28814-0, September.
    2. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    3. Elyasiani, Elyas & Kopecky, Kenneth J & VanHoose, David, 1995. "Costs of Adjustment, Portfolio Separation, and the Dynamic Behavior of Bank Loans and Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 955-974, November.
    4. Hiroshi Osano, 2001. "Injection of Public Funds into Banks under Deposit Insurance and Bank Regulation," Palgrave Macmillan Books, in: Hiroshi Osano & Toshiaki Tachibanaki (ed.), Banking, Capital Markets and Corporate Governance, chapter 4, pages 51-84, Palgrave Macmillan.
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    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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