Full-text VersionPublisher’s Version
Equivalence between the Diamond-Dybvig banking model and the optimal income taxation modelEconomics Letters
Document TypeJournal article
- Bank run,
- Demand deposit contract,
- Optimal income taxation
AbstractIt 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.
Copyright © 2002 Elsevier Science B.V.
Access to external full text or publisher's version may require subscription.
Citation InformationLin, P. (2003). Equivalence between the Diamond-Dybvig banking model and the optimal income taxation model. Economics Letters, 79(2), 193-198. doi: 10.1016/S0165-1765(02)00304-X