Transaction tax in a general equilibrium model

Preview

PDF WRAP_Theses_Shelley_2023.pdf - Submitted Version - Requires a PDF viewer. Download (1MB) | Preview

Request Changes to record.

Abstract

In this thesis, we study the effects of a quadratic transaction tax levied against agents in a continuous time, risk-sharing equilibrium model where agents have heterogeneous beliefs about the dynamics of the traded risky asset. The goal of each agent is to choose a trading strategy according to a mean-variance criterion, for which an optimal strategy exists in closed form as the solution to an FBSDE. This tractable setup allows us to analyse the utility loss incurred from taxation, which will be used as a measure in order to determine whether the transaction tax is beneficial.

When agents have homogeneous beliefs about the risky asset, we will show that although the agents cannot benefit en masse, the less risk-averse agents may benefit. Furthermore, when agents have heterogeneous beliefs about the risky asset, we will show that a small transaction tax can benefit the agents (from the planner’s perspective) if the their beliefs are sufficiently different.

We also consider theory relating to the vague convergence of real-valued measures. In particular, we comprehensively describe the relationship between the vague convergence of real-valued measures and the pointwise convergence of their distribution functions at continuity points. Using this theory, we extend a classical continuity theorem to the case of real-valued measures and motivate a novel stochastic control problem related to the transaction tax model.

Request changes or add full text files to a record

Repository staff actions (login required)

View Item