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Does the tax advantage of debt impact financial stability?

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  • Schepens, Glenn

Abstract

The tax deductibility of interest expenses on debt is an often neglected factor in the policy debate on bank capital requirements. A more equal tax treatment of debt and equity funding could enhance financial stability by giving banks an incentive to reduce leverage. JEL Classification: G21, G28, G32, H25

Suggested Citation

  • Schepens, Glenn, 2016. "Does the tax advantage of debt impact financial stability?," Research Bulletin, European Central Bank, vol. 27.
    • Handle: RePEc:ecb:ecbrbu:2016:0027:
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    References listed on IDEAS

    as
    1. Schepens, Glenn, 2016. "Taxes and bank capital structure," Journal of Financial Economics, Elsevier, vol. 120(3), pages 585-600.
    2. Anat Admati & Martin Hellwig, 2013. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It," Economics Books, Princeton University Press, edition 1, volume 1, number 9929.
    3. Anjan V. Thakor, 2014. "Bank Capital and Financial Stability: An Economic Trade-Off or a Faustian Bargain?," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 185-223, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    bank capital structure; bank regulation; tax shields;
    All these keywords.

    JEL classification:

    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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