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Taxing Financial Activity

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  • Jack M. Mintz

    ()
    (Rotman School of Management, University of Toronto, and the C.D. Howe Institute)

Abstract

In most countries, substantial business activity is related to financial intermediation: banking, trusts, investment companies and insurance. Financial businesses play a crucial role in the economy by matching lenders with borrowers as well as facilitating governance of businesses through close monitoring of funds lent to businesses. Financial institutions also reduce risk faced by investors by pooling investments over many different types of business activities and insuring against property, casualty and death risks. A significant part of the financial sector is regulated but an impressive array of financial activities is undertaken by unregulated and informal parts of the economy. Unlike other industries, tax systems often treat financial activity in a special way. Why is this so? In this module, I shall review the rationale and technical issues related to the taxation of financial activity by answering the following questions: What is financial intermediation? What are the roles of financial service providers in the economy so as to guide policy makers regarding the appropriate design of taxes? How are individual types of taxes designed to deal with special considerations related to financial activities? What are the economic impacts of taxes on financial activity?

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Bibliographic Info

Paper provided by International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series International Tax Program Papers with number 0305.

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Length: 28 Pages
Date of creation: Dec 2003
Date of revision:
Publication status: Published under same title in Bulletin for International Fiscal Documentation, vol. 58, no. 3, pp. 99-111.
Handle: RePEc:ttp:itpwps:0305

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Keywords: Financial institutions; taxation; financial intermediation;

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  1. Harry Huizinga, 1994. "International interest withholding taxation: Prospects for a common European policy," International Tax and Public Finance, Springer, vol. 1(3), pages 277-291, October.
  2. Wendy Dobson & Pierre Jacquet, 1998. "Financial Services Liberalization in the World Trade Organization," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 59.
  3. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Working Papers 4590, National Bureau of Economic Research, Inc.
  4. Alan J. Auerbach & Roger H. Gordon, 2002. "Taxation of Financial Services under a VAT," American Economic Review, American Economic Association, vol. 92(2), pages 411-416, May.
  5. John Y. Campbell & Kenneth A. Froot, 1994. "International Experiences with Securities Transaction Taxes," NBER Chapters, in: The Internationalization of Equity Markets, pages 277-308 National Bureau of Economic Research, Inc.
  6. Alan J. Auerbach, 1991. "Retrospective Capital Gains Taxation," NBER Working Papers 2792, National Bureau of Economic Research, Inc.
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