Corporate Financial Policy, Taxes, and Uncertainty: An Integration / Alan J. Auerbach, Mervyn A. King.

By:

Auerbach, Alan J

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0324.Publication details: Cambridge, Mass. National Bureau of Economic Research 1979.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

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Abstract: In this paper, we present a simple general equilibrium model of the portfolio behavior of households and institutions, paying particular attention to the influence of differences in tax rates and attitudes toward risk. Under the plausible assumptions that households are more risk averse than institutions and possess a greater relative "tax preference" for equity versus debt, we are able to characterize the equilibria which may result when debt is subject to bankruptcy risk. Among the issues which we study are the effects of tax rate changes, changes in risk, and changes in firm leverage on the relative asset holdings of the two types of investor and the rates of return earned on equity and debt. Numerical simulations provide additional understanding of the model's characteristics.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0324 (Browse shelf(Opens below))	Not For Loan

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March 1979.

In this paper, we present a simple general equilibrium model of the portfolio behavior of households and institutions, paying particular attention to the influence of differences in tax rates and attitudes toward risk. Under the plausible assumptions that households are more risk averse than institutions and possess a greater relative "tax preference" for equity versus debt, we are able to characterize the equilibria which may result when debt is subject to bankruptcy risk. Among the issues which we study are the effects of tax rate changes, changes in risk, and changes in firm leverage on the relative asset holdings of the two types of investor and the rates of return earned on equity and debt. Numerical simulations provide additional understanding of the model's characteristics.