Inequality and Financial Fragility

Yuliyan Mitkov ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: I study how the distribution of wealth influences the government’s response to a banking crisis and the fragility of the financial system. Distributional concerns tend to make full government guarantees of deposits in a systemic crisis credible for relatively poor agents, but not for wealthier agents. As a result, wealthier agents will have a stronger incentive to panic and, in equilibrium, the institutions in which they invest will be endogenously more likely to experience a run and receive a partial bailout. Thus, even under a utilitarian policy maker, bailout payments may be directed towards the wealthy at the expense of the general public. Moreover, the shape of the wealth distribution affects the level of fragility in the financial system. The recognition of this fact may alter the government’s desire to redistribute wealth ex ante.

Keywords: Inequality; Financial Fragility; Bailouts; Limited Commitment (search for similar items in EconPapers)
JEL-codes: E61 G21 G28 (search for similar items in EconPapers)
Pages: 51
Date: 2019-05
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp090 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2019_090

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().