Capital Trading, Stock Trading, and the Inflation Tax on Equity
Abstract
A market for used capital goods, or financial instruments that represent the ownership
of the used capital goods, induces inflation taxes on wealth and on the nominal income
flows that they provide. This paper explicitly introduces trading in either used capital
goods or financial instruments into the standard stochastic growth model with money
and production. These two monetary economies are equivalent. The value of the firm
is equal to the firm's capital stock divided by inflation. The resulting asset-pricing
conditions indicate that the effect of inflation on asset returns differs from the
effects found in the literature by the addition of a significant wealth tax. Journal
of Economic Literature Classification Numbers: E0, E4, E5. © 2001 Academic Press.
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https://hdl.handle.net/10161/2050Published Version (Please cite this version)
10.1006/redy.2001.0129Publication Info
Chami, R; Cosimano, TF; & Fullenkamp, C (2001). Capital Trading, Stock Trading, and the Inflation Tax on Equity. Review of Economic Dynamics, 4(3). pp. 575-606. 10.1006/redy.2001.0129. Retrieved from https://hdl.handle.net/10161/2050.This is constructed from limited available data and may be imprecise. To cite this
article, please review & use the official citation provided by the journal.
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Connel Fullenkamp
Professor of the Practice of Economics
Professor Fullenkamp specializes in the investigation of financial market development
and regulation of financial markets. His projects often involve the exploration of
such variables as immigrant worker remittances, economic policy, and the development
of countries. His completed papers have appeared in various leading academic journals,
including The Cato Journal, the Journal of Banking and Finance, the Review of Economic
Dynamics, and the Review of Economics and Statistics. Titles of his p

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