4  Let me highlight some avenues of research that I consider relevant in this context. First, the well-known equity-efficiency trade-off of taxation has given rise to a fruitful literature on the mechanisms driving the behavioural response of taxpayers and the size of such reactions. 5  While the initial focus of this literature relied on labour supply responses , some recent contributions have emphasised the 6  importance of accounting for additional mechanisms, such as tax avoidance or rent-seeking activities by top earners. For example, one such contribution finds that the incentive to bargain for more compensation in an environment of low top tax rates drives the bulk of the behavioural reaction of  4  See “Taxation. Stuck in the past”, The Economist, 11th August 2018. In this regard, it is worth noting that the early empirical literature found a very large elasticity of taxable income with respect to the marginal net-of-tax rate, while the subsequent research, part of it based on non-US experiences, has lowered this number to around 0.05 and 0.4; see Saez, E., J. Slemrod, and S. H. Giertz (2012): “The elasticity of taxable income with respect to marginal tax rates: A critical review,” Journal of Economic Literature, 50 (1), pp. 3-50; and Kleven, H. J., and E. A. Schultz (2014): “Estimating taxable income responses using Danish tax reforms”, American Economic Journal: Economic Policy,6 (4), pp.
Fernando Restoy: Forging a new financial system – reforms outstanding and ongoing Opening address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at a conference at Complutense University of Madrid, Madrid, 27 October 2014. *  *  *  Let me first thank the organisers, in particular professor Carmen Alonso Ledesma, a fellow sufferer on the Banco de España Governing Council, for their kind invitation to participate in this conference. Looking at the programme, the topics to be discussed in the various papers and roundtables, and the expertise of the speakers, I harbour no doubts that this conference will prove enormously useful in enriching the knowledge of all those present about the reforms undertaken and the challenges still pending for the financial system. A good number of these reforms and challenges are linked to the flaws identified in the functioning of the sector as a result of the international financial crisis that broke in 2007. In particular, the crisis has highlighted considerable structural shortcomings – which led to an incorrect evaluation and management of key risks by financial institutions – and major limitations to the prevailing crisis-prevention and management systems. In the euro area, as you know, the perverse link between the vulnerability of the credit sector and the weakness of public finances precipitated an institutional crisis which jeopardised the very continuity of the Monetary Union. The consequences of the financial crisis have been very adverse.