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Inequality, tax avoidance and financial instability

  • Landier, Augustin
  • Plantin, Guillaume

We model the link between inequality, lack of political commitment, and ex-cessive risk taking. If politicians cannot commit to a long-term tax schedule, increasing returns to tax avoidance induce the middle class to take on non rewarded ?nancial risk despite risk aversion. Electoral pressure may lead an incumbent politician to endorse this excessive risk taking if income inequal-ities are large. By increasing the scope for tax avoidance, globalization of capital and human capital markets might have increased ?nancial fragility.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 701.

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Date of creation: Oct 2011
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Handle: RePEc:ide:wpaper:25609
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  1. Emannauel Farhi & Ivan Werning, 2006. "Capital Taxation," 2006 Meeting Papers 455, Society for Economic Dynamics.
  2. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  3. Guillaume Plantin & Igor Makarov, 2010. "Rewarding Trading Skills Without Inducing Gambling," 2010 Meeting Papers 899, Society for Economic Dynamics.
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  8. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
  9. Henrik Jacobsen Kleven & Camille Landais & Emmanuel Saez, 2013. "Taxation and International Migration of Superstars: Evidence from the European Football Market," American Economic Review, American Economic Association, vol. 103(5), pages 1892-1924, August.
  10. Dirk Krueger & Fabrizio Perri, 2004. "On the Welfare Consequences of the Increase in Inequality in the United States," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 83-138 National Bureau of Economic Research, Inc.
  11. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
  12. Wolfers, Justin, 2002. "Are Voters Rational? Evidence from Gubernatorial Elections," Research Papers 1730, Stanford University, Graduate School of Business.
  13. Borys Grochulski, 2007. "Optimal nonlinear income taxation with costly tax avoidance," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 77-109.
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