Optimal Asset Taxes in Financial Markets with Aggregate Uncertainty

Florian Scheuer

No 17817, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies Pareto-optimal risk-sharing arrangements in a private information economy with aggregate uncertainty and ex ante heterogeneous agents. I show how to implement Pareto-optima as equilibria when agents can trade claims to consumption contingent on aggregate shocks in financial markets. The first result is that if aggregate and idiosyncratic shocks are independent, the implementation of optimal allocations does not require any interventions in financial markets. This result can be extended to dynamic settings in the sense that, in this case, only savings need to be distorted, but not trades in financial markets. Second, I characterize optimal trading distortions in financial markets when aggregate and idiosyncratic shocks are not independent. In this case, optimal asset taxes must be higher for those securities that pay out in aggregate states in which consumption is more volatile. For instance, this can provide an efficiency justification for the frequently observed differential tax treatment of different asset classes, such as debt and equity claims.

JEL-codes: D8 E2 E6 G1 H2 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-dge
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Florian Scheuer, 2013. "Optimal Asset Taxes in Financial Markets with Aggregate Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 405-420, July.

Downloads: (external link)
http://www.nber.org/papers/w17817.pdf (application/pdf)

Related works:
Journal Article: Optimal Asset Taxes in Financial Markets with Aggregate Uncertainty (2013)
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:nbr:nberwo:17817

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17817

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().