American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Excessive Financing Costs in a Representative Agent Framework
American Economic Journal: Macroeconomics
(pp. 215–37)
Abstract
This paper highlights a pecuniary externality that results in excessive financing costs. Firms borrow to finance purchases of an inelastically supplied input, bidding up its price. Since higher input prices necessitate more debt obligations, this leads to an increase in intermediation costs. A quantitative interpretation of the model suggests that it is optimal to tax financial intermediation by increasing the borrowing rate by 3 percentage points. (JEL E13, E44, G21, G32, H21, H25)Citation
Eden, Maya. 2016. "Excessive Financing Costs in a Representative Agent Framework." American Economic Journal: Macroeconomics 8 (2): 215–37. DOI: 10.1257/mac.20140147Additional Materials
JEL Classification
- E13 General Aggregative Models: Neoclassical
- E44 Financial Markets and the Macroeconomy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H25 Business Taxes and Subsidies including sales and value-added (VAT)