NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model

Alan J. Auerbach, Mervyn A. King

NBER Working Paper No. 546 (Also Reprint No. r0445)
Issued in August 1980
NBER Program(s):   PE

This paper explores the portfolio behavior of investors differing with respect to both tax rates and risk-aversion, emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium. Under certain conditions on the securities available in the market, which also are required for shareholders to be unanimous in supporting firm value maximization, investors will be segmented by tax rate into two groups, one specialized in equity and the other in debt. Though the relative wealths of the two groups determines the aggregate debt-equity ratio, each firm will be indifferent to its financial policy.

download in pdf format
   (196 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0546

Published: Auerbach, Alan J. and King, Mervyn A. "Taxation, Portfolio Choice and Debt- Equity Ratios: A General Equilibrium Model." Quarterly Journal of Economics , (November 1983): 588-609. citation courtesy of

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us