Financial Innovations, Taxes, and the Growth of Finance

Shuhei Aoki, Makoto Nirei and Kazufumi Yamana
Additional contact information
Shuhei Aoki: Shinshu University
Kazufumi Yamana: Deloitte Tohmatsu Consulting LLC

No CARF-F-574, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: The U.S. economy since 1980 has experienced the growth of finance, manifested by the increases in the value-added of financial services and the value of financial assets. The growth of finance has been associated with the increase in the mutual fund share in the financial assets and the relatively stable unit cost of finance. This paper constructs an incomplete market dynamic general equilibrium model with the islands structure, which has both idiosyncratic and island-level shocks on the firm’s productivity. Financial intermediaries trade shares of individual firms and risk-free debts, as well as mutual funds which diversify away idiosyncratic shocks but can not diversify island-level shocks. This model, together with the declining transaction costs on mutual funds and personal and corporate income tax rates calibrated from data, can quantitatively account for these facts.

Pages: 43
Date: 2023-10
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.carf.e.u-tokyo.ac.jp/wp/wp-content/uploads/2023/10/F574.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf574

Access Statistics for this paper

More papers in CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by ().