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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Consider the model of investment in Sections 9.2–9.5. Suppose it becomes known at some date that there will be a one-time capital levy. Specifically, capital holders will be taxed an amount equal to fraction f of the value of their capital holdings at some time in the future, time T. Assume the industry is initially in long-run equilibrium. What happens at the time of this news? How do K and q behave between the time of the news and the time the levy is imposed? What happens to K and q at the time of the levy? How do they behave thereafter? (Hint: Is q anticipated to change discontinuously at the time of the levy?)
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