An Overlapping Generations Model of Taxpayer Bailouts of Banks

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4 Citations (Scopus)


The paper constructs an overlapping generations model to evaluate how different bank rescue plans affect banks’ risk-taking incentives. For a non-competitive banking industry, we find bailout with tax imposed on the old generation or equity bail-in to be efficient policies in the sense that they implement socially optimal risk-taking. In a competitive banking sector, no-bailout implements the socially-optimal risk-taking. Bailout policies financed by a tax imposed on the young generation always induce excessive risk-taking.
Original languageEnglish
Article numberJFS578
Peer-reviewed scientific journalJournal of Financial Stability
Issue numberDecember
Pages (from-to)71-80
Number of pages10
Publication statusPublished - 2017
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • Bank failures
  • Taxpayer bailout of banks
  • Equity bail-in
  • Risk-taking by banks
  • Financial fragility


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