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The tax system and the financial crisis

Author

Listed:
  • Vieri Ceriani

    () (Banca d'Italia)

  • Stefano Manestra

    () (Banca d'Italia)

  • Giacomo Ricotti

    () (Banca d'Italia)

  • Alessandra Sanelli

    () (Banca d'Italia)

  • Ernesto Zangari

    () (Banca d'Italia)

Abstract

This paper investigates the effects of the tax system on the economic factors that triggered the financial crisis. We examine three cases in which the tax regime interacted with these factors, reinforcing them. First, we focus on the taxation of residential building: while the importance of capital gains taxes is disputed, the deductibility of mortgage interest may have contributed to the financial crisis by creating some of the raw materials for the securitization industry. Second, a narrow perspective on the tax treatment, together with specific provisions, may have fostered performance-based remuneration of managers, resulting in overemphasis of short-term profitability and incentive to excessive risk-taking. Third, the securitization process, which played a key role in the outbreak of the financial crisis, was accompanied by opportunities for tax arbitrage and reduction of the overall tax wedge paid by investors, through offset of incomes that are ordinarily taxed at different rates; a de facto exemption of CDS premiums received by non-residents supplemented the tax arbitrage.

Suggested Citation

  • Vieri Ceriani & Stefano Manestra & Giacomo Ricotti & Alessandra Sanelli & Ernesto Zangari, 2011. "The tax system and the financial crisis," Questioni di Economia e Finanza (Occasional Papers) 85, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_85_11
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    File URL: http://www.bancaditalia.it/pubblicazioni/qef/2011-0085/QEF_85.pdf
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    References listed on IDEAS

    as
    1. Paul van den Noord, 2005. "Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence," Economie Internationale, CEPII research center, issue 101, pages 29-45.
    2. Paul van den Noord & Chistopher Heady, 2001. "Surveillance of Tax Policies: A Synthesis of Findings in Economic Surveys," OECD Economics Department Working Papers 303, OECD Publishing.
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    Cited by:

    1. Chaudhry, Sajid Mukhtar & Mullineux, Andrew & Agarwal, Natasha, 2015. "Balancing the regulation and taxation of banking," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 38-52.
    2. Panos Tsakloglou & Francesco Figari & Alari Paulus & Holly Sutherland & Gerlinde Verbist & Francesca Zantomio, 2012. "Taxing home ownership: distributional effects of including net imputed rent in taxable income," EcoMod2012 4323, EcoMod.
    3. Szarowska, Irena, 2013. "Can tax policy co-cause the crisis?," MPRA Paper 59780, University Library of Munich, Germany.
    4. Tony Addison & Yukka Pirttilä & Finn Tarp & Carlos Felipe Balcázar & Lidia Ceriani & Sergio Olivieri & Marco Ranzani, 2017. "Rent-Imputation for Welfare Measurement: A Review of Methodologies and Empirical Findings," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(4), pages 881-898, December.
    5. Sajid M. Chaudhry & Andy Mullineux, 2014. "Introduction," Chapters,in: Taxing Banks Fairly, chapter 1, pages 1-30 Edward Elgar Publishing.
    6. Riccardo De Bonis, 2016. "What Piketty said in Capital in the Twenty-first Century and how economists reacted," Mo.Fi.R. Working Papers 130, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

    More about this item

    Keywords

    taxation; financial crisis; housing market; stock options; securitization; credit default swaps;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • G1 - Financial Economics - - General Financial Markets

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