Equivalence between the Diamond-Dybvig banking model and the optimal income taxation model

Ping LIN

doi:10.1016/S0165-1765(02)00304-X

Equivalence between the Diamond-Dybvig banking model and the optimal income taxation model

Ping LIN

Department of Economics

Research output: Journal Publications › Journal Article (refereed) › peer-review

1 Citation (Scopus)

Abstract

It is shown that the Diamond-Dybvig [Journal of Political Economy 96 (1983) 768] banking model with a continuum of types of agents has the same analytical structure as the standard optimal income taxation model [Review of Economic Studies 38 (1971) 175; Review of Economic Studies 43 (1976) 261]. Insights from the income taxation literature immediately imply that a bank-run equilibrium exists in the banking model as long as the long-term project is sufficiently costly to liquidate.

Original language	English
Pages (from-to)	193-198
Number of pages	6
Journal	Economics Letters
Volume	79
Issue number	2
DOIs	https://doi.org/10.1016/S0165-1765(02)00304-X
Publication status	Published - 1 May 2003

Funding

sThis paper is based on Section 2.7 of my doctoral dissertation submitted to the Graduate School of the University of Minnesota. I am indebted to my supervisors Ed Green and Neil Wallace for their guidance and advice. I also thank Nobuhiro Kiyotaki, Antonio Merlo and Arijit Mukherji for their useful comments and suggestions.

Keywords

Bank run
Demand deposit contract
Optimal income taxation

Access to Document

10.1016/S0165-1765(02)00304-X

Cite this

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abstract = "It is shown that the Diamond-Dybvig [Journal of Political Economy 96 (1983) 768] banking model with a continuum of types of agents has the same analytical structure as the standard optimal income taxation model [Review of Economic Studies 38 (1971) 175; Review of Economic Studies 43 (1976) 261]. Insights from the income taxation literature immediately imply that a bank-run equilibrium exists in the banking model as long as the long-term project is sufficiently costly to liquidate.",

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AB - It is shown that the Diamond-Dybvig [Journal of Political Economy 96 (1983) 768] banking model with a continuum of types of agents has the same analytical structure as the standard optimal income taxation model [Review of Economic Studies 38 (1971) 175; Review of Economic Studies 43 (1976) 261]. Insights from the income taxation literature immediately imply that a bank-run equilibrium exists in the banking model as long as the long-term project is sufficiently costly to liquidate.

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KW - Optimal income taxation

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Equivalence between the Diamond-Dybvig banking model and the optimal income taxation model

Abstract

Funding

Keywords

Access to Document

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