Stochastic Taxation and Asset Pricing in Dynamic General Equilibrium

No 9301, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G1 H2 (search for similar items in EconPapers)
Date: 2002-11
New Economics Papers: this item is included in nep-dge and nep-pbe
Note: AP PE
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Citations: View citations in EconPapers (1)

Published as Sialm, Clemens. "Stochastic Taxation And Asset Pricing In Dynamic General Equilibrium," Journal of Economic Dynamics and Control, 2006, v30(3,Mar), 511-540.

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Journal Article: Stochastic taxation and asset pricing in dynamic general equilibrium (2006)
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