Does Inflation and High Taxes Increase Bank Leverage?
AbstractDoes the combination of inflation and high corporate taxes explain the increase in bank leverage in the 20th century? Inflation automatically increases bank debt, while high corporate taxes hinder capital accumulation. Capital ratios therefore drop, until leverage-induced returns are sufficient to uphold them at constant levels. This theory was confronted with Swedish bank data 1870–2001. Bank capital ratios dropped when inflation and corporate tax rates were high, during WWI and in 1940–1980. The theory can explain the sinking bank capital ratios during these periods, but also their relative stability since the early 1980s. High corporate taxes and inflation were estimated to account for half of the drop in Swedish bank capital ratios since WWII.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Ratio Institute in its series Ratio Working Papers with number 69.
Length: 35 pages
Date of creation: 28 Apr 2005
Date of revision:
Contact details of provider:
Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Phone: 08-441 59 00
Fax: 08-441 59 29
Web page: http://www.ratio.se/
More information through EDIRC
Bank leverage; Capital-asset ratio; Inflation; Corporate taxes;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- 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
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
- N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-30 (All new papers)
- NEP-FIN-2005-04-30 (Finance)
- NEP-MAC-2005-04-30 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995.
"The role of capital in financial institutions,"
Journal of Banking & Finance,
Elsevier, vol. 19(3-4), pages 393-430, June.
- Allen N. Berger & Richard J. Herring & Giorgio P. Szegö, 1995. "The Role of Capital in Financial Institutions," Center for Financial Institutions Working Papers 95-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Allen N. Berger & Richard J. Herring & Giorgio P. Szego, 1995. "The role of capital in financial institutions," Finance and Economics Discussion Series 95-23, Board of Governors of the Federal Reserve System (U.S.).
- Romer, Christina D, 1986. "Is the Stabilization of the Postwar Economy a Figment of the Data?," American Economic Review, American Economic Association, vol. 76(3), pages 314-34, June.
- Andrea Sironi, 2000.
"Testing for market discipline in the European banking industry: evidence from subordinated debt issues,"
Finance and Economics Discussion Series
2000-40, Board of Governors of the Federal Reserve System (U.S.).
- Sironi, Andrea, 2003. " Testing for Market Discipline in the European Banking Industry: Evidence from Subordinated Debt Issues," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 443-72, June.
- Bohlin, Jan, 2003. "Swedish historical national accounts: The fifth generation," European Review of Economic History, Cambridge University Press, vol. 7(01), pages 73-97, April.
- Franklin Allen & Roni Michaely, 2002.
Center for Financial Institutions Working Papers
01-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Robert C. Merton, 1995.
"Financial Innovation and the Management and Regulation of Financial Institutions,"
NBER Working Papers
5096, National Bureau of Economic Research, Inc.
- Merton, Robert C., 1995. "Financial innovation and the management and regulation of financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 461-481, June.
- Englund, Peter, 1999. "The Swedish Banking Crisis: Roots and Consequences," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 80-97, Autumn.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin Korpi).
If references are entirely missing, you can add them using this form.