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Financial transaction tax and banking margins: An empirical note for Colombia

Author

Listed:
  • Ignacio Lozano-Espitia
  • Hernando Vargas-Herrera
  • Norberto Rodríguez-Niño

Abstract

Taxes on financial transactions have been especially controversial because of their potential effects on banking disintermediation. A modality of such taxes (Bank Debit Tax, BDT) was introduced in Colombia since the late nineties. Using monthly panel data from 1996 to 2014 for the major depository institutions, this paper provides evidence on the effects of the BDT on bank intermediation spread. For the total sample (thirteen banks), results suggest that nowadays the hypothetical elimination of the BDT would reduce spreads in 60 basis points, i.e. from 7.7% to levels close to 7.1%. The results do not provide clear evidence of differential impacts by bank size. Additional instruments of the financial repression as well as other determinants of banking spreads confirm the expected effects. ****** Los impuestos sobre las transacciones financieras han sido controversiales, especialmente por sus posibles efectos en la desintermediación bancaria. Desde finales de los anos noventa se introdujo en Colombia una modalidad de estos impuestos (el Gravamen sobre los Movimientos Financiaros [GMF]). Utilizando datos mensuales desde 1996 a 2014 para los principales bancos del sistema, este documento provee evidencia sobre los efectos del GMF en los márgenes de intermediación. Para la muestra total (trece bancos), los resultados sugieren que la hipotética eliminación del GMF reduciría los márgenes hoy en día en 60 puntos básicos, es decir, del 7,7% a niveles cercanos al 7,1%. Los resultados no ofrecen evidencia clara de impactos diferenciales por tamano del banco. El trabajo también confirma los efectos esperados de los otros instrumentos de la represión financiera y de los otros determinantes de los márgenes identificados por la literatura.

Suggested Citation

  • Ignacio Lozano-Espitia & Hernando Vargas-Herrera & Norberto Rodríguez-Niño, 2017. "Financial transaction tax and banking margins: An empirical note for Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 35(83), pages 154-160, June.
    • Handle: RePEc:col:000107:015643
    DOI: 10.1016/j.espe.2017.03.001
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    References listed on IDEAS

    as
    1. Ignacio Lozano & Jorge Ramos, 2000. "Análisis sobre la Incidencia del Impuesto del 2x1000 a las Transacciones Financieras," Borradores de Economia 143, Banco de la Republica de Colombia.
    2. Adolfo Barajas & Roberto Steiner & Natalia Salazar, 1999. "Interest Spreads in Banking in Colombia, 1974-96," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-4.
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    5. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291, Decembrie.
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    7. Mr. Isaias Coelho & Ms. Victoria J Perry & Mr. Liam P. Ebrill, 2001. "Bank Debit Taxes in Latin America: An Analysis of Recent Trends," IMF Working Papers 2001/067, International Monetary Fund.
    8. Dairo Estrada & Esteban Gómez & Inés Orozco, 2006. "Determinants of Interest Margins in Colombia," Borradores de Economia 2335, Banco de la Republica.
    9. Jorge Baca-Campodónico & Luiz de Mello & Andrei Kirilenko, 2006. "The Rates and Revenue of Bank Transaction Taxes," OECD Economics Department Working Papers 494, OECD Publishing.
    10. Suescun, Rodrigo, 2004. "Raising revenue with transaction taxes in Latin america - or is it better to tax with the devil you know?," Policy Research Working Paper Series 3279, The World Bank.
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    More about this item

    Keywords

    Banking margins; Intermediary; Financial regulation; Tax distortions;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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