Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252304 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 143
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
This paper examines financial regulation and distortionary taxes in a heterogeneous-agents economy with pecuniary externalities induced by a collateral constraint. Limiting the loan-to-value ratio benefits only few unconstrained borrowers and reduces ex-ante social welfare. A Pigouvianstyle symmetric debt tax (that subsidizes savings) raises collateral prices and lowers interest rates, which stimulates borrowing and generates welfare gains for almost all income groups. A Pigouvian-style asset subsidy induces a wealth appreciation, while an asset tax particularly benefits lowwealth borrowers and enhances social welfare. Overall, collateral effects are of minor importance and interest rate rather than asset price responses are decisive for welfare effects.
Subjects: 
Financial regulation
heterogeneous agents
collateral constraint
pecuniary externalities
JEL: 
D31
E44
G28
H23
Document Type: 
Working Paper

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