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

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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.

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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0511019.

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Length: 37 pages
Date of creation: 26 Nov 2005
Date of revision: 27 Nov 2005
Handle: RePEc:wpa:wuwppe:0511019

Note: Type of Document - pdf; pages: 37
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Web page: http://128.118.178.162

Related research

Keywords: Bank Account Debits Tax; BAD Tax; Financial Transactions Tax; FTT; Currency Transaction Tax; CTT; Automated Payment Transaction Tax; APT Tax; CPMF; Disintermediation; Illiquidity;

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  1. Kenneth D. West, 1991. "The Sources of Fluctuations in Aggregate Inventories and GNP," NBER Working Papers 2992, National Bureau of Economic Research, Inc.
  2. Jeffrey Frankel., 1995. "How Well Do Foreign Exchange Markets Function: Might a Tobin Tax Help?," Center for International and Development Economics Research (CIDER) Working Papers C95-058, University of California at Berkeley.
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  5. Isaias Coelho & Victoria P. Summers & Liam P. Ebrill, 2001. "Bank Debit Taxes in Latin America - An Analysis of Recent Trends," IMF Working Papers 01/67, International Monetary Fund.
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  7. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
  8. Garber, Peter & Taylor, Mark P, 1995. "Sand in the Wheels of Foreign Exchange Markets: A Sceptical Note," Economic Journal, Royal Economic Society, vol. 105(428), pages 173-80, January.
  9. G. William Schwert, 1988. "Tests For Unit Roots: A Monte Carlo Investigation," NBER Technical Working Papers 0073, National Bureau of Economic Research, Inc.
  10. 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.
  11. Jones, Charles M & Seguin, Paul J, 1997. "Transaction Costs and Price Volatility: Evidence from Commission Deregulation," American Economic Review, American Economic Association, vol. 87(4), pages 728-37, September.
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  13. Janet Gale Stotsky & Parthasrathi Shome, 1995. "Financial Transactions Taxes," IMF Working Papers 95/77, International Monetary Fund.
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  16. Edgar L. Feige, 2001. "Taxation for the 21st Century: The Automated Payment Transaction (APT) Tax," Public Economics 0106001, EconWPA.
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Cited by:
  1. Pedro H. Albuquerque & Solange Gouvea, 2005. "Canaries and Vultures: A Quantitative History of Monetary Mismanagement in Brazil," Development and Comp Systems 0511027, EconWPA.
  2. María Angélica Arbeláez Restrepo & Leonard E. Burman & Sandra Consuelo Zuluaga, 2002. "The bank debit tax in Colombia," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 003565, FEDESARROLLO.

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