TY  - JOUR
AU  - Auerbach,Alan J.
AU  - King,Mervyn A.
TI  - Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 546
PY  - 1984
Y2  - 1984
UR  - http://www.nber.org/papers/w0546
L1  - http://www.nber.org/papers/w0546.pdf
N1  - Author contact info:
Alan J. Auerbach
Department of Economics
530 Evans Hall, #3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510/643-0711
Fax: 510/643-0413
E-Mail: auerbach@econ.berkeley.edu

Mervyn A. King
Governor
Bank of England
Threadneedle Street
London EC2R 8AH
 UNITED KINGDOM
Tel: 44-20-7601-4963
Fax: 44-20-7601-4953
E-Mail: mervyn.king@bankofengland.co.uk
AB  - 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.
ER  -