TY  - JOUR
AU  - Sialm,Clemens
TI  - Stochastic Taxation and Asset Pricing in Dynamic General Equilibrium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9301
PY  - 2002
Y2  - November 2002
UR  - http://www.nber.org/papers/w9301
L1  - http://www.nber.org/papers/w9301.pdf
N1  - Author contact info:
Clemens Sialm
University of Texas at Austin
McCombs School of Business
1 University Station; B6600
Austin, TX 78712
Tel: 512-232-6835
E-Mail: clemens.sialm@mccombs.utexas.edu
AB  - Tax rates have fluctuated considerably since federal income taxes were introduced in the United States in 1913. This paper analyzes the effects of stochastic taxation on asset prices in a dynamic general equilibrium model. Stochastic taxation affects the after-tax returns of both risky and safe assets. Whenever taxes change, bond and equity prices adjust to clear the asset markets. These price adjustments affect assets with long durations, such as equities and long-term bonds, more than short-term assets. Under plausible conditions, investors require higher term and equity premia as compensation for the risk introduced by tax changes.
ER  -