Unformatted text preview: 2. Assume that there is an income tax on dividends. Specifically dividends are taxed at the rate τ t y t so that τ t units of the time t good are collected on dividends. Assume a balanced budget rule τ t = g t . Calculate the equilibrium share price function. 3. Assume an income like that in part 2, but assume a rule given by τ t = g t + b (1 − 1 /R t ) where b > is a permanent level of government borrowing. Calculate the equilibrium share price function. 4. In what sense are your results consistent with the claim that state contingent asset prices are independent of the tax strategy, given a stochastic process for per capita government expenditures? 1...
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- Spring '07
- Public Finance, per capita, equilibrium share price, share price function