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- Title
Tax Arbitrage and the Existence of Equilibrium Prices for Financial Assets.
- Authors
DAMMON, ROBERT M.; GREEN, RICHARD C.
- Abstract
In models where both investors and securities are subject to differential taxation, there may be no set of prices that rule out infinite gains to trade, or "tax arbitrage." This paper characterizes the joint restrictions on financial-asset returns and investors' tax schedules that preclude tax arbitrage in the absence of short-sale constraints. The authors show that, if there exists any configuration of marginal tax rates on investors' tax schedules that rule out infinite gains to trade, then "no-tax-arbitrage" prices will exist. They also show that the existence of "no-tax-arbitrage" prices ensures the existence of equilibrium prices.
- Subjects
PRICES of securities; ECONOMIC equilibrium; INVESTMENTS; ASSETS (Accounting); INVESTORS; DIVIDEND yield; ARBITRAGE; TAXATION; EARNINGS per share; PORTFOLIO management (Investments); RATE of return; CAPITAL investments; ECONOMICS
- Publication
Journal of Finance (Wiley-Blackwell), 1987, Vol 42, Issue 5, p1143
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1987.tb04358.x