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Taxation and Bank Efficiency: Cross-Country Evidence

Author

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  • Chrysovalantis Gaganis
  • Fotios Pasiouras
  • Angelos Tsaklanganos

Abstract

This paper investigates the relationship between the effective tax rate on bank income and bank profit efficiency. Our sample consists of 3,472 observations from 533 publicly quoted commercial banks operating in 46 countries between 2001 and 2009. We estimate a global frontier while controlling for various country-specific characteristics such as regulations, macroeconomic conditions, market concentration, and financial and overall development. The results indicate that a higher tax rate results in higher pre-tax profit efficiency. However, the relationship is non-linear, indicating that there is a point after which a further increase in taxation reduces bank profit efficiency. We also find that concentration in the banking sector enhances the effect of taxation on profit efficiency. Overall, the results provide some support to the tax-shifting hypothesis. However, there is no robust evidence that the impact of taxation on profit efficiency is influenced by the extent of private monitoring.

Suggested Citation

  • Chrysovalantis Gaganis & Fotios Pasiouras & Angelos Tsaklanganos, 2013. "Taxation and Bank Efficiency: Cross-Country Evidence," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 20(2), pages 229-244, July.
    • Handle: RePEc:taf:ijecbs:v:20:y:2013:i:2:p:229-244
    DOI: 10.1080/13571516.2013.782984
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    References listed on IDEAS

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    1. (IFS), Institute for Fiscal Studies & Mirrlees, James (ed.), 2011. "Tax By Design: The Mirrlees Review," OUP Catalogue, Oxford University Press, number 9780199553747, Decembrie.
    2. Gerard Caprio & James Barth & Ross Levine, 2008. "Bank Regulations Are Changing: But For Better or Worse?," Center for Development Economics 2008-04, Department of Economics, Williams College.
    3. Barth, James R. & Caprio, Gerard, Jr. & Levine, Ross, 2008. "Bank regulations are changing : for better or worse ?," Policy Research Working Paper Series 4646, The World Bank.
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    1. Dimitras, Augustinos I. & Gaganis, Chrysovalantis & Pasiouras, Fotios, 2018. "Financial reporting standards' change and the efficiency measures of EU banks," International Review of Financial Analysis, Elsevier, vol. 59(C), pages 223-233.
    2. Gawehn, Vanessa, 2019. "Banks and corporate income taxation: A review," arqus Discussion Papers in Quantitative Tax Research 247, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Sang, Nguyen Minh, 2017. "Income Diversification and Bank Efficiency in Vietnam," OSF Preprints 9x2yz, Center for Open Science.

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