Endogenous Response to the ‘Network Tax’
The turmoil in the financial markets that had its roots in the 2007 US subprime crisis prompted government action all over the world motivated by contagion concerns, leaving a heavy bill for the tax payers to pick up. We find that a contributory regime based on contagion risk exposure changes the trade-off between liquidity coinsurance and counterparty risk that motivates the formation of the financial network in the first place, potentially leading to a less connected architecture. Furthermore, if that regime bestows the weight of the levy on both borrower and lender it has the potential to shift the system towards safer grounds. Since we model bank interactions as a network formation game, we are able to provide an account of the changes that come into play with the introduction of tax, which can be a fundamental factor in the design process of the policy function.
|Date of creation:||Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Rua Dr. Roberto Frias, 4200 PORTO|
Web page: http://www.fep.up.pt/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jackson, Matthew O. & Wolinsky, Asher, 1996.
"A Strategic Model of Social and Economic Networks,"
Journal of Economic Theory,
Elsevier, vol. 71(1), pages 44-74, October.
- Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Castiglionesi, F. & Navarro, N., 2007. "Optimal Fragile Financial Networks," Discussion Paper 2007-100, Tilburg University, Center for Economic Research.
- Sheri Markose & Simone Giansante & Mateusz Gatkowski & Ali Rais Shaghaghi, 2010.
"Too Interconnected To Fail: Financial Contagion and Systemic Risk In Network Model of CDS and Other Credit Enhancement Obligations of US Banks,"
- Markose, Sheri M & Giansante, Simone & Gatkowski, Mateusz & Shaghaghi, Ali Rais, 2010. "Too Interconnected To Fail: Financial Contagion and Systemic Risk in Network Model of CDS and Other Credit Enhancement Obligations of US Banks," Economics Discussion Papers 3716, University of Essex, Department of Economics.
- Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005.
"Liquidity Risk and Contagion,"
Journal of the European Economic Association,
MIT Press, vol. 3(2-3), pages 556-566, 04/05.
- Viral Acharya & Tanju Yorulmazer, 2007.
"Too many to fail - an analysis of time-inconsistency in bank closure policies,"
Bank of England working papers
319, Bank of England.
- Acharya, Viral V. & Yorulmazer, Tanju, 2007. "Too many to fail--An analysis of time-inconsistency in bank closure policies," Journal of Financial Intermediation, Elsevier, vol. 16(1), pages 1-31, January.
- Acharya, Viral V & Yorulmazer, Tanju, 2004. "Too Many to Fail - An Analysis of Time Inconsistency in Bank Closure Policies," CEPR Discussion Papers 4778, C.E.P.R. Discussion Papers.
- repec:esx:essedp:683 is not listed on IDEAS
- Allen, Franklin & Carletti, Elena, 2008. "The role of liquidity in financial crises," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 379-412.
When requesting a correction, please mention this item's handle: RePEc:por:fepwps:408. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.