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Asset Pricing under Progressive Taxes and Existence of General Equilibrium

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Abstract

This paper shows that the existence of general equilibrium in a two-period economy with financial markets and progressive anonymous tax system is not at all problematic, provided securities are purely financial. We explore the concepts of weakly and strongly arbitrage-free security price for return and tax system, and prove arbitrage-free asset pricing theorems without short-sale restrictions. A general equilibrium is a set of current and future prices (contingent on uncertain events) and a set of individual plans such that all markets are cleared. The existence of such an equilibrium is proved under the following conditions: continuous, weakly convex, strictly monotone, complete preferences and strictly positive endowments.

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Authors and Affiliations

  1. Department of Economics, Social Science Centre, The University of Western Ontario, London, Ont., Canada, N6A 5C2

    Hui Huang

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  1. Hui Huang
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Correspondence to Hui Huang.

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Huang, H. Asset Pricing under Progressive Taxes and Existence of General Equilibrium. J Glob Optim 31, 471–491 (2005). https://doi.org/10.1007/s10898-004-1322-x

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  • DOI: https://doi.org/10.1007/s10898-004-1322-x

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