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Financial Transaction Tax and Banking Margins: An Empirical Note for Colombia

Author

Listed:
  • Ignacio Lozano-Espitia

    (Banco de la República de Colombia)

  • Hernando Vargas-Herrera

    (Banco de la República de Colombia)

  • Norberto Rodríguez-Niño

    (Banco de la República de Colombia)

Abstract

Taxes on financial transactions have been especially controversial because of their potential effects on banking disintermediation. A modality of such taxes (Bank Debit Tax, BDT) was introduced in Colombia since the late nineties. Using monthly panel data from 1996 to 2014 for the major depository institutions, this paper provides evidence on the effects of the BDT on bank intermediation spreads. For the total sample (thirteen banks), results suggest that nowadays the hypothetical elimination of the BDT would reduce spreads in 90 basis points, from 7,7% to levels close to 6,8%. The results do not provide clear evidence of differential impacts by bank size. Tests for a regime switch of the BDT are performed, but no evidence is found to support this conjecture.

Suggested Citation

  • Ignacio Lozano-Espitia & Hernando Vargas-Herrera & Norberto Rodríguez-Niño, 2015. "Financial Transaction Tax and Banking Margins: An Empirical Note for Colombia," Borradores de Economia 909, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:909
    DOI: 10.32468/be.909
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    References listed on IDEAS

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    More about this item

    Keywords

    Banking margins; intermediary; financial regulation; tax distortions;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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