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Alternative Approaches to Taxing the Financial Sector: Wich is Best and Where Does Chile Stand?

In: Banking Market Structure and Monetary Policy

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  • Patrick Honohan

    (Centre for Economic Policy Research)

Abstract

In contrast to the enthusiasm of some observers for sweeping reforms to financial sector taxation (such as abolishing taxation of capital income or introducing a universal transactions tax), this paper argues that practical policy needs to pay special attention to the potential for tax arbitrage, and to avoiding a system that is too sensitive to inflation. A review of the main features of Chile's financial sector taxation regime (in particular the stamp taxes on checks and on loans) against this background shows some strengths, though the rates are somewhat higher than would result from a VAT applied systematically to financial services at the standard rate.
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Suggested Citation

  • Patrick Honohan, 2004. "Alternative Approaches to Taxing the Financial Sector: Wich is Best and Where Does Chile Stand?," Central Banking, Analysis, and Economic Policies Book Series,in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking Market Structure and Monetary Policy, edition 1, volume 7, chapter 11, pages 315-344 Central Bank of Chile.
  • Handle: RePEc:chb:bcchsb:v07c11pp315-344
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    References listed on IDEAS

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    1. Huizinga, Harry & Nicodeme, Gaetan, 2004. "Are international deposits tax-driven," Journal of Public Economics, Elsevier, vol. 88(6), pages 1093-1118, June.
    2. Edgar L. Feige, 2000. "Taxation for the 21st century: the automated payment transaction (APT) tax," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 473-511, October.
    3. Asli Demirguc-Kunt & Edward J. Kane, 2002. "Deposit Insurance Around the Globe: Where Does It Work?," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 175-195, Spring.
    4. Martin Feldstein, 1983. "Inflation, Tax Rules, and Capital Formation," NBER Books, National Bureau of Economic Research, Inc, number feld83-1.
    5. Alain Laurin & Giovanni Majnoni, 2003. "Bank Loan Classification and Provisioning Practices in Selected Developed and Emerging Countries," World Bank Publications, The World Bank, number 15157.
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    Cited by:

    1. Honohan, Patrick, 2003. "Avoiding the pitfalls in taxing financial intermediation," Policy Research Working Paper Series 3056, The World Bank.

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