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How should financial intermediation services be taxed?

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  • Ben Lockwood

    (CBT, CEPR and Department of Economics, University of Warwick)

Abstract

This paper considers the optimal taxation of savings intermediation services in a dynamic general equilibrium setting, when the government can also use consumption, income and profit taxes. When 100% taxation of profit is available, taxes on services supplied to firms should be deductible from profit, implying the optimality of a VAT-type tax. As for the rate of tax, in the steady state, an optimal arrangement is to set it equal to the rate of tax on capital income, not consumption. In turn, the capital income tax is zero when the when an unrestricted profit tax is available, but in the more realistic case when such a tax is not available, this rate can be positive or negative, but generally different to the optimal rate of tax on consumption.

Suggested Citation

  • Ben Lockwood, 2013. "How should financial intermediation services be taxed?," Working Papers 1309, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:1309
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    References listed on IDEAS

    as
    1. Ben Lockwood, 2010. "How Should Financial Intermediation Services be Taxed?," Working Papers 1014, Oxford University Centre for Business Taxation.
    2. Jack, W., 1998. "The Treatment of Financial Services Under a Broad-Based Consumption Tax," CEPR Discussion Papers 394, Centre for Economic Policy Research, Research School of Economics, Australian National University.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How Should Financial Intermediation Services be Taxed?
      by Christian Zimmermann in NEP-DGE blog on 2010-11-24 10:31:57

    Citations

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    Cited by:

    1. Ben Lockwood, 2010. "How Should Financial Intermediation Services be Taxed?," Working Papers 1014, Oxford University Centre for Business Taxation.
    2. Giancarlo Corsetti & Michael P. Devereux & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2011. "Chapter 5: Taxation and Regulation of the Financial Sector," EEAG Report on the European Economy, CESifo, vol. 0, pages 147-169, February.
    3. Fatih Yilmaz, "undated". "VAT Treatment of Financial Institutions: Implications for the Real Economy," Working Papers 2013-30, Department of Economics, University of Calgary, revised 02 Nov 2013.
    4. Masciandaro, Donato & Passarelli, Francesco, 2013. "Financial systemic risk: Taxation or regulation?," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 587-596.
    5. International Monetary Fund, 2012. "Italy: Technical Assistance Report--The Delega Fiscale and the Strategic Orientation of Tax Reform," IMF Staff Country Reports 2012/280, International Monetary Fund.
    6. Felix Bierbrauer, 2012. "On the incidence of a financial transactions tax in a model with fire sales," Working Paper Series in Economics 55, University of Cologne, Department of Economics.
    7. Danuse Nerudova, 2011. "Taxing the financial sector in the European Union," MENDELU Working Papers in Business and Economics 2011-16, Mendel University in Brno, Faculty of Business and Economics.
    8. 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.
    9. Michael Firth & Kenneth McKenzie, 2012. "The GST and Financial Services: Pausing for Perspective," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 5(29), September.
    10. Felix Bierbrauer, 2013. "Financial Transaction Taxes and Fire Sales," 2013 Meeting Papers 433, Society for Economic Dynamics.
    11. Bierbrauer, Felix, 2014. "Tax incidence for fragile financial markets," Journal of Public Economics, Elsevier, vol. 120(C), pages 107-125.
    12. Giancarlo Corsetti & Michael P. Devereux & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2011. "EEAG Report on the European Economy 2011," EEAG Report on the European Economy, CESifo, vol. 0, pages 1-176, February.
    13. Matthew Schurin, 2012. "Optimal Fiscal Policy and the Banking Sector," Working papers 2012-40, University of Connecticut, Department of Economics, revised Jul 2013.
    14. Felix Bierbrauer, 2012. "On the Incidence of a Financial Transactions Tax in a Model with Fire Sales," CESifo Working Paper Series 3870, CESifo.

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    More about this item

    Keywords

    financial intermediation services; tax design; banks; payment services;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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