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Taxation of Bank Windfall Profits in the Baltics

Author

Listed:
  • Milda Valentinaite
  • Egle Ceponyte
  • Ingars Zustrups

Abstract

The shift in monetary policy has different repercussions on bank profits depending on the prevalence of fixed or floating interest rates charged on loans. The Baltic states provide a case study of the impact of monetary tightening on profits in predominantly floating interest rates setup amid high liquidity. This paper examines the drivers of the profit surge following 2022-2023 tightening cycle, reviews the fiscal policy responses chosen by Lithuania, Latvia and Estonia, and draws tentative lessons on the design and effectiveness of sector-specific windfall taxation.

Suggested Citation

  • Milda Valentinaite & Egle Ceponyte & Ingars Zustrups, 2025. "Taxation of Bank Windfall Profits in the Baltics," European Economy - Economic Briefs 086, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecobri:086
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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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