Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/234122
Authors: 
Mignot, Sarah
Tramontana, Fabio
Westerhoff, Frank H.
Year of Publication: 
2021
Series/Report no.: 
BERG Working Paper Series No. 169
Abstract: 
Based on the seminal asset-pricing model by Brock and Hommes (1998), we analytically show that higher wealth taxes increase the risky asset's fundamental value, enlarge its local stability domain, may prevent the birth of nonfundamental steady states and, if they exist, reduce the risky asset's mispricing. We furthermore find that higher wealth taxes may hinder the emergence of endogenous asset price oscillations and, if they exist, dampen their amplitudes. Since oscillatory price dynamics may be associated with lower mispricing than locally stable nonfundamental steady states, policymakers may not always want to suppress them by imposing (too low) wealth taxes. Overall, however, our study suggests that wealth taxes tend to stabilize the dynamics of financial markets.
Subjects: 
Asset price dynamics
wealth taxes
heterogeneous expectations
nonlinear dynamics
stability and bifurcation analysis
JEL: 
D84
G12
G18
G41
ISBN: 
978-3-943153-90-3
Document Type: 
Working Paper

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