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Taxation or regulation in preventing systemic risk? The political distortion

Author

Listed:
  • Donato Masciandaro

    (Università Bocconi, Milano)

  • Francesco Passarelli

    (Università di Teramo)

Abstract

Free riding leads to excess risk production. This problem may be solved, at least partially, either by financial regulation or by taxation. From a normative viewpoint, taxation is superior in many respects. However, reality shows that financial regulation is adopted more frequently. If the majority chooses regulation, the level is likely to be too harsh. If it chooses taxation, then the level is likely to be too low. Due to regressive effects, a tax on financial transactions receives low support from a majority of low polluting portfolio owners.The same kind of majority may strategically choose regulation in order to burden the minority with a larger share of the cost of reducing systemic risk

Suggested Citation

  • Donato Masciandaro & Francesco Passarelli, 2013. "Taxation or regulation in preventing systemic risk? The political distortion," BANCARIA, Bancaria Editrice, vol. 4, pages 2-14, April.
    • Handle: RePEc:ban:bancar:v:4:y:2013:m:april:p:2-14
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    More about this item

    JEL classification:

    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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