Topic: Financial instability, tax policy, and the tax expenditure concept

Presenter: Professor Tim Edgar - University of Western Ontario

As a public policy goal, moderation of financial instability has gained some prominence in the face of the recent credit contraction. Not surprisingly perhaps, the role of the tax system in exacerbating instances of financial instability has begun to receive some attention in the tax-policy literature. Consistent with the general thrust of that literature, this presentation explores, in a very preliminary way, how some selected tax-base rule choices line up with an explicit goal of ensuring that the tax system supports regulatory and monetary policies intended to moderate financial instability. The presentation frames the inquiry in terms of Hyman Minsky's "financial instability hypothesis" as an explanation of the sources of financial instability. Minsky's work suggests how excessive leverage and risk taking arise and can be seen as defensible targets informing the choice of certain tax-base rules, many of which are conventionally characterized in the tax-policy literature as efficiency-reducing concessions to revenue concerns. In this respect, the presentation draws on tax-expenditure analysis to re-conceptualize the possible design of some of these familiar income base rules whose justification is altered somewhat when framed against Minsky's explanation of the sources of financial instability.

All welcome, no RSVP required. Download the seminar paper

Contact: Beth Williams, ph: 334 69350, email:

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