Taxation, Transfer Income and Stock Market Participation

Research output: Working paperResearch

Abstract

We study a redistributive tax system that taxes income and redistributes tax revenues in such a way that relatively rich agents are net contributors to relatively poor agents. The closed-form solution of our model allows two main conclusions: (i) Despite ongoing transfers, wealth levels are not harmonized because poorer agents mainly use their transfer income to finance present consumption. (ii) Since the evolution of the economy determines both the level of tax revenues and the evolution of the stock market, transfer income is subject to stock market risk. Hence, poorer agents optimally reduce their equity shares. This can happen to an extent that they optimally no longer participate in the stock market.
Original languageEnglish
Place of Publicationwww
PublisherSSRN: Social Science Research Network
Number of pages34
DOIs
Publication statusPublished - 2012

Cite this

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title = "Taxation, Transfer Income and Stock Market Participation",
abstract = "We study a redistributive tax system that taxes income and redistributes tax revenues in such a way that relatively rich agents are net contributors to relatively poor agents. The closed-form solution of our model allows two main conclusions: (i) Despite ongoing transfers, wealth levels are not harmonized because poorer agents mainly use their transfer income to finance present consumption. (ii) Since the evolution of the economy determines both the level of tax revenues and the evolution of the stock market, transfer income is subject to stock market risk. Hence, poorer agents optimally reduce their equity shares. This can happen to an extent that they optimally no longer participate in the stock market.",
keywords = "Redistributive taxation, Portfolio choice, Asset pricing, Stock market participation",
author = "Marcel Fischer and {Astrup Jensen}, Bjarne",
year = "2012",
doi = "10.2139/ssrn.2009301",
language = "English",
publisher = "SSRN: Social Science Research Network",
type = "WorkingPaper",
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Taxation, Transfer Income and Stock Market Participation. / Fischer, Marcel; Astrup Jensen, Bjarne.

www : SSRN: Social Science Research Network, 2012.

Research output: Working paperResearch

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N2 - We study a redistributive tax system that taxes income and redistributes tax revenues in such a way that relatively rich agents are net contributors to relatively poor agents. The closed-form solution of our model allows two main conclusions: (i) Despite ongoing transfers, wealth levels are not harmonized because poorer agents mainly use their transfer income to finance present consumption. (ii) Since the evolution of the economy determines both the level of tax revenues and the evolution of the stock market, transfer income is subject to stock market risk. Hence, poorer agents optimally reduce their equity shares. This can happen to an extent that they optimally no longer participate in the stock market.

AB - We study a redistributive tax system that taxes income and redistributes tax revenues in such a way that relatively rich agents are net contributors to relatively poor agents. The closed-form solution of our model allows two main conclusions: (i) Despite ongoing transfers, wealth levels are not harmonized because poorer agents mainly use their transfer income to finance present consumption. (ii) Since the evolution of the economy determines both the level of tax revenues and the evolution of the stock market, transfer income is subject to stock market risk. Hence, poorer agents optimally reduce their equity shares. This can happen to an extent that they optimally no longer participate in the stock market.

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