The Effects of Redistributive Taxation in Credit Markets with Adverse Selection
14 Pages Posted: 5 Mar 2016 Last revised: 5 Aug 2019
Date Written: February 17, 2016
This paper studies the effects of redistributive taxation in credit markets with adverse selection and shows that there exists a range of taxes that creates Pareto improvement relative to the (zero-tax) market allocation by increasing aggregate investment. For sufficiently high taxes, an increase in the safe interest rate can be accompanied by an increase in investment.
Keywords: Credit Market; Adverse Selection; Taxation; Redistribution; Welfare
JEL Classification: D82; D86; H82; H25
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