Transaction tax in a general equilibrium model
Talk, SIAM Conference on Financial Mathematics and Engineering, Philadelphia, USA
Abstract: In this talk we consider the effects of a quadratic tax rate levied against two agents with heterogeneous risk aversions in a continuous-time, risk-sharing equilibrium model. 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 and show why an agent can benefit from taxation before redistribution. Moreover, we additionally model the situation where agents have heterogeneous beliefs about the traded asset and discuss whether there exists an optimal tax that benefits the agents.