Tax-Financed Public Funds Injection into Banks and its Welfare Implications

Daisuke Ishikawa ()
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Daisuke Ishikawa: Graduate School of Economics, Osaka University

No 03-02, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: I construct a model of a dynamic economy in which the government collects taxes and injects them into banks f capitals for stabilization of financial system. In theoretical part, I derive loan demand and supply functions from dynamic optimizing problems of households and banks. Carrying out a simulation, I show that the injection improves welfare in some first periods, although it rather aggravates in the long term. I also show that the injection induces efficient investments in some first periods, while, it induces inefficient investments in the long term.

Keywords: Public funds injection; Stabilization of financial system; Welfare analysi (search for similar items in EconPapers)
JEL-codes: E17 E59 E65 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-01
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