Macroeconomic effects of an equity transaction tax in a general-equilibrium model

The paper studies the impact of an equity transaction tax (ETT) on financial and real variables in a DSGE model with two types of financial frictions: (1) financial intermediaries facing a leverage constraint; (2) noise shocks that lead to the emergence of non-fundamental equity trade. The ETT depre...

Full description

Saved in:
Bibliographic Details
Published in:Journal of economic dynamics & control 2013-02, Vol.37 (2), p.466-482
Main Authors: Lendvai, Julia, Raciborski, Rafal, Vogel, Lukas
Format: Article
Language:English
Subjects:
Capital costs
Capital market
Corporate income tax
Cost of capital
Equity
Financial frictions
Financial intermediaries
Investments
Macroeconomics
Noise trade
Studies
Transaction costs
Transaction tax
Volatility
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The paper studies the impact of an equity transaction tax (ETT) on financial and real variables in a DSGE model with two types of financial frictions: (1) financial intermediaries facing a leverage constraint; (2) noise shocks that lead to the emergence of non-fundamental equity trade. The ETT depresses the demand for equity and hence increases the cost of capital; this then affects firms' investment decisions. In the long run, the tax is found to be as distortive as a corporate income tax. The transaction tax also reduces volatility in financial markets, but the impact on real volatility is limited.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2012.09.010