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Financial Systemic Risk: Taxation or Regulation?

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  • Donato Masciandaro, Francesco Passarelli

Abstract

In this paper we describe systemic financial risk as a pollution issue. Free riding leads to excess risk production. This problem may be solved, at least partially, either with financial regulation or taxation. From a normative viewpoint taxation is superior in many respects. However, reality shows that financial regulation is more frequently adopted. In this paper we make a positive, politico-economic argument. If the majority chooses a tax, then it is likely to be too low. If it chooses regulation it will possibly be too harsh. Moreover, a majority of low polluting portfolio owners may strategically use regulation in order to charge the minority a larger share of the externality reduction.

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Bibliographic Info

Paper provided by ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy in its series ISLA Working Papers with number 41.

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Length: 19 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:slp:islawp:islawp41

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Keywords: financial crises; banking regulation; financial transaction taxes;

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Cited by:
  1. Alesina, Alberto & Passarelli, Francesco, 2014. "Regulation versus taxation," Journal of Public Economics, Elsevier, vol. 110(C), pages 147-156.
  2. Charles Goodhart, 2011. "Global Macroeconomic and Financial Supervision: Where Next?," NBER Working Papers 17682, National Bureau of Economic Research, Inc.
  3. Charles A. E. Goodhart, 2013. "Global Macroeconomic and Financial Supervision: Where Next?," NBER Chapters, in: Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, pages 343-363 National Bureau of Economic Research, Inc.

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