What is the long-run effect of dividend taxation on aggregate capital accumulation? To address this question, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. This firm heterogeneity generates a cross-sectional...

We develop a dynamic general equilibrium model to study the impact of the 2003 dividend and capital gains tax cuts. Firms are heterogeneous in productivity and make investment and financing decisions subject to capital adjustment costs, equity issuance costs, and collateral constraints. Our...

In a recent article, Barro (2006) revives the Rietz explanation of the equity premium. Rietz (1988) showed that infrequent, large drops in consumption make the theoretical equity premium large. Barro shows empirically that in the XXth century, disasters are frequent and large enough, and stock...

What is the long-run effect of dividend taxation on aggregate capital accumulation? To address this question, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. This firm heterogeneity generates a cross-sectional...

Using plant-level data from Chile and the U.S., we show that investment spikes are highly pro-cyclical, so much so that changes in the number of establishments undergoing investment spikes (the “extensive margin”) account for the bulk of variation in aggregate investment. The number of...

I derive a production-based asset pricing formula to infer aggregate stock market returns from macroeconomic time series when the technology is putty-clay. Capital heterogeneity leads to variation in the aggregate stock market value through a new compositional effect. The asset pricing formula,...