Speculative asset price dynamics and wealth taxes

DOI10.1007/S10203-021-00340-ZMaRDI QIDQ2064592zbMATH OpenOpenAlexFDO

Authors Sarah Mignot, Fabio Tramontana, Frank Westerhoff

Publication date 6 January 2022

Published in Decisions in Economics and Finance (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1007/s10203-021-00340-z

zbMATH Keywords

asset price dynamicsheterogeneous expectationsnonlinear dynamicsstability and bifurcation analysiswealth taxes

Mathematics Subject Classification ID

Macroeconomic theory (monetary models, models of taxation) (91B64) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Review text

The paper extends the model of \textit{W. A. Brock} and \textit{C. H. Hommes} [J. Econ. Dyn. Control 22, No. 8--9, 1235--1274 (1998; Zbl 0913.90042)] along two directions. First, the policymakers are allowed to impose a tax on speculators' wealth. Second, the supply of (outside) shares of the risky asset is allowed to be positive. In particular, this assumption implies that the fundamental value of the risky asset entails a risk premium (which is absent in the original model by Brock \& Hommes). The authors show that higher wealth taxes increase the risky asset's fundamental value, enlarge its local stability domain and may prevent the birth of nonfundamental steady states. The analysis suggests that wealth taxes tend to stabilize the dynamics of financial markets.

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Cited in

(5)

• Are transaction taxes a cause of financial instability?
• Asset prices and wealth dynamics in a financial market with random demand shocks
• Dynamical stabilization of currency market with fractal-like trajectories
• Should short-term speculators be taxed, or subsidised?
• The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: a behavioral finance approach

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