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Banks, Debt And Risk: Assessing The Spillovers Of Corporate Taxes

Author

Listed:
  • Serena Fatica
  • Wouter Heynderickx
  • Andrea Pagano

Abstract

We find evidence of tax‐driven strategic allocation of debt and asset risk across group entities of European banks. We evaluate the effects that establishing tax neutrality between debt and equity finance has on systemic risk, and show that the degree of coordination in implementing the hypothetical tax reform matters. In particular, a coordinated elimination of the tax advantage of debt would significantly reduce systemic losses in the event of a severe banking crisis. By contrast, uncoordinated tax reforms are not equally beneficial precisely because national tax policies generate spillovers through cross‐border bank activities. (JEL G21, G28, H25)

Suggested Citation

  • Serena Fatica & Wouter Heynderickx & Andrea Pagano, 2020. "Banks, Debt And Risk: Assessing The Spillovers Of Corporate Taxes," Economic Inquiry, Western Economic Association International, vol. 58(2), pages 1023-1044, April.
    • Handle: RePEc:bla:ecinqu:v:58:y:2020:i:2:p:1023-1044
    DOI: 10.1111/ecin.12827
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    Cited by:

    1. Lorenzo Garlanda-Longueville & Mathias Lé & Kevin Parra Ramirez, 2025. "Why Do Banks Have So Much Debt In Tax Havens?," EconomiX Working Papers 2025-43, University of Paris Nanterre, EconomiX.
    2. Bellucci, Andrea & Fatica, Serena & Heynderickx, Wouter & Kvedaras, Virmantas & Pagano, Andrea, 2023. "Liability taxes, risk, and the cost of banking crises," Journal of Corporate Finance, Elsevier, vol. 79(C).
    3. Fatica, Serena & Gregori, Wildmer Daniel, 2020. "How much profit shifting do European banks do?," Economic Modelling, Elsevier, vol. 90(C), pages 536-551.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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