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A developing line of regulatory thought frames systemic risk in the financial sector as a negative externality and seeks to avoid the resulting social cost via a firm-level Pigovian tax - not too different from contemporary efforts to regulate environmental pollution. Tax policy theorists have yet to comprehensively consider the impact of a systemic risk tax on the existing tax policy literature. This article works to fill that gap and investigates some of the regulatory implications of a firm-level tax on the production of systemic risk from the perspective of an individual investor. What I ultimately find in the pages to come is that regulators should be pleased for the most part with the intended results of a tax on systemic risk. Though that bodes well for the future of such taxes generally, systemic risk as a concept unfortunately suffers from an epislemological crisis, and, therefore, any punitive lax that relies on accurate, precise, and timely measurement of systemic risk is likely to fail on adminislrability grounds. In short, while all policymakers doubtless agree that systemic risk is real, few agree on what systemic risk is, how it exists, who creates it, and the process by which one might attribute its "production" to any individual firm. That lack of clarity coupled with the sheer size and importance of the financial sector suggests that a poorly implemented systemic risk tax is likely to have significant distortionary effects. As I will argue, a systemic risk tax under current conditions thus appears unworkable and, as a consequence, existing programs should remain the preferred method of bringing about financial stability.

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22 september
Virginia Tax Review

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