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Inequality, tax avoidance and financial instability

Augustin Landier and Guillaume Plantin

No 11-282, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: 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.

Date: 2011-10
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Related works:
Working Paper: Inequality, Tax Avoidance, and Financial Instability (2011) Downloads
Working Paper: Inequality, tax avoidance and financial instability (2011) Downloads
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