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

Julia Lendvai, Rafal Raciborski and Lukas Vogel

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 2, 466-482

Abstract: 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.

Keywords: Transaction tax; Noise trade; Financial frictions; Cost of capital (search for similar items in EconPapers)
JEL-codes: E22 E44 E62 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:2:p:466-482

DOI: 10.1016/j.jedc.2012.09.010

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