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BAD Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model

Author

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  • Pedro H. Albuquerque

    (Texas A&M International University)

Abstract

This paper uses a dynamic general equilibrium model to study the economic effects of bank account debits (BAD) taxation. Australia and various Latin American countries have levied or levy BAD taxes. Aspects such as financial disintermediation, market illiquidity, and impacts on dividend and interest rates are considered. Part of the BAD tax revenue may be fictitious, due to increased interest payments on government debt. The Brazilian BAD tax (CPMF) experience is evaluated. The empirical analysis confirms some theoretical predictions. Incidence base over GDP appears to be sensitive to the tax rate, possibly engendering a Laffer curve. The tax may also cause real interest rates to increase. Furthermore, the deadweight losses are relatively large, even if revenues are small. The theoretical and empirical results suggest that the BAD tax is not adequate for revenue collection.

Suggested Citation

  • Pedro H. Albuquerque, 2005. "BAD Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model," Public Economics 0511019, University Library of Munich, Germany, revised 26 Dec 2005.
    • Handle: RePEc:wpa:wuwppe:0511019
    Note: Type of Document - pdf; pages: 37
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    References listed on IDEAS

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    Cited by:

    1. María Angélica Arbeláez Restrepo & Leonard E. Burman & Sandra Consuelo Zuluaga, 2004. "The bank debit tax in Colombia," Informes de Investigación 3565, Fedesarrollo.
    2. Restrepo, Felipe, 2019. "The effects of taxing bank transactions on bank credit and industrial growth: Evidence from Latin America," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 335-355.
    3. Albuquerque, Pedro H. & Gouvea, Solange, 2009. "Canaries and vultures: A quantitative history of monetary mismanagement in Brazil," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 479-495, April.

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    More about this item

    Keywords

    Bank Account Debits Tax; BAD Tax; Financial Transactions Tax; FTT; Currency Transaction Tax; CTT; Automated Payment Transaction Tax; APT Tax; CPMF; Disintermediation; Illiquidity;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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