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Title: Inequality, Tax Avoidance, and Financial Instability

Author(s): Augustin Landier and Guillaume Plantin

Publication Date: May 2011

Keyword(s): financial instability and tax avoidance

Programme Area(s): Financial Economics

Abstract: We model the link between inequality and excessive risk taking. In the presence of increasing returns to tax avoidance, the middle class is willing to take non rewarded financial risk despite risk aversion. Electoral pressure may lead an incumbent politician to endorse this excessive risk taking if the right tail of wealth distribution is sufficiently fat. By increasing the scope for tax avoidance, globalization of capital and human capital markets might have increased financial fragility.

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Bibliographic Reference

Landier, A and Plantin, G. 2011. 'Inequality, Tax Avoidance, and Financial Instability'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8391