Financial Systemic Risk: Taxation or Regulation?

Francesco Passarelli Donato Masciandaro
Authors registered in the RePEc Author Service: Francesco Passarelli and Donato Masciandaro ()

No 41, ISLA Working Papers from ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy

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.

Keywords: financial crises; banking regulation; financial transaction taxes (search for similar items in EconPapers)
JEL-codes: D62 D72 G21 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2011-12
New Economics Papers: this item is included in nep-ban, nep-fmk, nep-reg and nep-rmg
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Citations: View citations in EconPapers (2)

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Journal Article: Financial systemic risk: Taxation or regulation? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:slp:islawp:islawp41

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