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Taxing Banks: An Evaluation of the German Bank Levy

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  • Claudia M. Buch
  • Björn Hilberg
  • Lena Tonzer
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    Abstract

    Bank distress can have severe negative consequences for the stability of the financial system, the real economy, and public finances. Regimes for restructuring and restoring banks financed by bank levies and fiscal backstops seek to reduce these costs. Bank levies attempt to internalize systemic risk and increase the costs of leverage. This paper evaluates the effects of the German bank levy implemented in 2011 as part of the German bank restructuring law. Our analysis offers three main insights. First, revenues raised through the bank levy are minimal, because of low tax rates and high thresholds for tax exemptions. Second, the bulk of the payments were contributed by large commercial banks and the head institutes of savings banks and credit unions. Third, the levy had no effect on the volume of loans or interest rates for the average German bank. For the banks affected most by the levy, we find evidence of fewer loans, higher lending rates, and lower deposit rates.

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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4704.

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    Date of creation: 2014
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    Handle: RePEc:ces:ceswps:_4704

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    Related research

    Keywords: bank levy; bank lending; interest rates; German banks;

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    References

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    1. Di Nicolo, G. & Gamba, A. & Lucchetta, M., 2011. "Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking," Discussion Paper 2011-090, Tilburg University, Center for Economic Research.
    2. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Banking crises: An equal opportunity menace," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4557-4573.
    3. Perotti, Enrico C & Suarez, Javier, 2011. "A Pigovian Approach to Liquidity Regulation," CEPR Discussion Papers 8271, C.E.P.R. Discussion Papers.
    4. H. Evren Damar & Césaire A. Meh & Yaz Terajima, 2010. "Leverage, Balance Sheet Size and Wholesale Funding," Working Papers 10-39, Bank of Canada.
    5. Ugo Albertazzi & Leonardo Gambacorta, 2006. "Bank Profitability and Taxation," Computing in Economics and Finance 2006 364, Society for Computational Economics.
    6. Gunther Capelle-Blancard & Olena Havrylchyk, 2013. "The Ability of Banks to Shift Corporate Income Taxes to Customers," Working Papers 2013-09, CEPII research center.
    7. repec:dgr:uvatin:2011040 is not listed on IDEAS
    8. Nikola Tarashev & Mathias Drehmann, 2011. "Measuring the systemic importance of interconnected banks," BIS Working Papers 342, Bank for International Settlements.
    9. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
    10. Chiorazzo, Vincenzo & Milani, Carlo, 2011. "The impact of taxation on bank profits: Evidence from EU banks," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3202-3212.
    11. Demirgüç-Kunt, Asli & Huizinga, Harry, 2001. "The taxation of domestic and foreign banking," Journal of Public Economics, Elsevier, vol. 79(3), pages 429-453, March.
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