Can taxes tame the banks? Evidence from European bank levies
AbstractIn 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 InfoPaper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1325.
Date of creation: 2013
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- Michael P. Devereux & Niels Johannesen & John Vella, 2013. "Can taxes tame the banks? Evidence from European bank levies," EPRU Working Paper Series 1315, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-10 (All new papers)
- NEP-BAN-2014-01-10 (Banking)
- NEP-CBA-2014-01-10 (Central Banking)
- NEP-PUB-2014-01-10 (Public Finance)
- NEP-RMG-2014-01-10 (Risk Management)
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