Abstract
ABSTRACT An extensive literature documents the role of financial markets in economic development. To help explain this relationship, this paper constructs an endogenous growth model in which a stock market emerges to allocate risk and explores how the stock market alters investment incentives in ways that change steady state growth rates. The paper demonstrates that stock markets accelerate growth by (1) facilitating the ability to trade ownership of firms without disrupting the productive processes occurring within firms and (2) allowing agents to diversify portfolios. Tax policy affects growth directly by altering investment incentives and indirectly by changing the incentives underlying financial contracts.
Keywords
IncentiveStock marketRestricted stockStock (firearms)Endogenous growth theoryEconomicsMonetary economicsFinancial marketTax policyInvestment policyBusinessMarket economyFinanceTax reformHuman capital
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Publication Info
- Year
- 1991
- Type
- article
- Volume
- 46
- Issue
- 4
- Pages
- 1445-1465
- Citations
- 939
- Access
- Closed
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Cite This
Ross Levine
(1991).
Stock Markets, Growth, and Tax Policy.
The Journal of Finance
, 46
(4)
, 1445-1465.
https://doi.org/10.1111/j.1540-6261.1991.tb04625.x
Identifiers
- DOI
- 10.1111/j.1540-6261.1991.tb04625.x