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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 Toulouse School of Economics (TSE) in its series TSE Working Papers with number 11-282.

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Date of creation: Oct 2011
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Handle: RePEc:tse:wpaper:25610
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  1. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," NBER Working Papers 14048, National Bureau of Economic Research, Inc.
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  7. 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.
  8. Guillaume Plantin & Igor Makarov, 2010. "Rewarding Trading Skills Without Inducing Gambling," 2010 Meeting Papers 899, Society for Economic Dynamics.
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