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Taxation of Financial Assets in Developing Countries

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  • Chamley, Christophe

Abstract

In developing countries most of the financial assets are deposits at commercial banks. This article focuses on the implicit taxation of financial assets through seigniorage, reserve requirements, lending targets, and interest ceilings combined with inflation. The impact of taxation on financial deepening increases significantly with the tax rate, as shown by cross-sectional and time series data for selected countries in sub-Saharan Africa and Southeast Asia. The problem of measuring revenue is examined, and the efficiency cost of taxation is analyzed in a Harberger framework. Although taxes on financial assets have a low administrative cost, the excess burden caused by the misallocation of resources is probably a much higher fraction of revenues than that of other taxes. Copyright 1991 by Oxford University Press.

Suggested Citation

  • Chamley, Christophe, 1991. "Taxation of Financial Assets in Developing Countries," World Bank Economic Review, World Bank Group, vol. 5(3), pages 513-533, September.
  • Handle: RePEc:oup:wbecrv:v:5:y:1991:i:3:p:513-33
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    Cited by:

    1. Niloy Bose & Jill A. Holman & Kyriakos C. Neanidis, 2007. "The Optimal Public Expenditure Financing Policy: Does The Level Of Economic Development Matter?," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 433-452, July.
    2. Andres Erosa, 2001. "Financial Intermediation and Occupational Choice in Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 303-334, April.
    3. Patrick Honohan, 1994. "The Fiscal Approach to Financial Intermediation Policy," Papers WP049, Economic and Social Research Institute (ESRI).
    4. Gollin, Douglas, 1995. "Do Taxes on Large Firms Impede Growth? Evidence from Ghana," Bulletins 7488, University of Minnesota, Economic Development Center.

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