Working Paper: NBER ID: w10291
Authors: Alan J. Auerbach
Abstract: A central point in the recent debate about Social Security in the United States has been the extent to which the federal government should take significant positions in the equity market. But, as this paper shows, the government already has a much more significant, if implicit position in the U.S. equity market through its claim to future tax revenues. Using estimates of the sensitivity of federal tax revenues to stock market returns, I calculate the implicit equity position of the federal government, defined as the equity position that would be as sensitive to the stock market as the present value of federal revenues. Although standard errors are large, point estimates indicate that the implicit federal equity position exceeds the size of the stock market itself, a result that is consistent with the fact that revenues from all sources, not just taxes on corporate source income, are responsive to stock market returns.
Keywords: No keywords provided
JEL Codes: H20; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stock market returns (G17) | Federal tax revenues (H29) |
| Federal tax revenues (H29) | Implicit equity position of the government (H69) |
| Stock market returns (G17) | Implicit equity position of the government (H69) |
| Changes in tax law (K34) | Sensitivity of tax revenues to stock market returns (H20) |
| Implicit equity position of the government (H69) | Total market value of the stock market (G10) |