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Can taxes tame the banks? Evidence from European bank levies

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  • Michael P. Devereux

    ()
    (Oxford University Centre for Business Taxation)

  • Niels Johannesen

    ()
    (University of Copenhagen)

  • John Vella

    ()
    (Oxford University Centre for Business Taxation)

Abstract

In the wake of the fi?nancial crisis, a number of countries have introduced levies on bank borrowing with the aim of reducing risk in the ?financial sector. This paper studies the behavioural responses to the bank levies and evaluates the policy. We find that the levies induced banks to borrow less but also to hold more risky assets. The reduction in funding risk clearly dominates for banks with high capital ratios but is exactly offset by the increase in portfolio risk for banks with low capital ratios. This suggests that while the levies have reduced the total risk of relatively safe banks, they have done nothing to curb the risk of relatively risky banks, which presumably pose the greatest threat to fi?nancial stability.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1325.

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Date of creation: 2013
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Handle: RePEc:btx:wpaper:1325

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Taxing banks does not tame them
    by Economic Logician in Economic Logic on 2014-01-22 15:00:00
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Cited by:
  1. Heshmati, Almas & Kim, Jungsuk, 2014. "A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth," IZA Discussion Papers 8119, Institute for the Study of Labor (IZA).

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