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Can taxes tame the banks? Evidence from European bank levies

Author

Listed:
  • Michael P. Devereux

    (Centre for Business Taxation, Oxford University)

  • Niels Johannesen

    (Copenhagen University)

  • John Vella

    (Centre for Business Taxation, Oxford University)

Abstract

In the wake of the ?nancial crisis, a number of countries have introduced levies on bank borrowing with the aim of reducing risk in the ?nancial sector. This paper studies the behavioral responses to the bank levies and evaluates the policy. We ?nd that the levies induced banks to borrow less but also to hold more risky assets. The reduction in funding risk clearly dominates for banks with high capital ratios but is exactly o¤set by the increase in portfolio risk for banks with low capital ratios. This suggests that while the levies have reduced the total risk of relatively safe banks, they have done nothing to curb the risk of relatively risky banks, which presumably pose the greatest threat to ?nancial stability.

Suggested Citation

  • Michael P. Devereux & Niels Johannesen & John Vella, 2013. "Can taxes tame the banks? Evidence from European bank levies," EPRU Working Paper Series 1315, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:1315
    as

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    File URL: http://web.econ.ku.dk/eprn_epru/Workings_Papers/WP-13-05.pdf
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Taxing banks does not tame them
      by Economic Logician in Economic Logic on 2014-01-22 21:00:00

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    Cited by:

    1. Julia Merz & Michael Overesch & Georg Wamser, 2015. "Tax vs. Regulation Policy and the Location of Financial Sector FDI," CESifo Working Paper Series 5500, CESifo Group Munich.
    2. Vollmer Uwe, 2015. "‚Stairway to Heaven‘ oder ‚Highway to Hell‘? – Eine Einschätzung der Europäischen Bankenunion / ‚Stairway to Heaven‘ or ‚Highway to Hell‘? – An Evaluation of the European Banking Union," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 147-174, January.
    3. Heshmati, Almas & Kim, Jungsuk, 2014. "A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth," IZA Discussion Papers 8119, Institute for the Study of Labor (IZA).
    4. repec:eee:finsta:v:31:y:2017:i:c:p:81-92 is not listed on IDEAS
    5. Andreas Haufler & Ulf Maier, 2016. "Regulatory Competition in Capital Standards with Selection Effects among Banks," CESifo Working Paper Series 5839, CESifo Group Munich.
    6. Cappelletti, Giuseppe & Guazzarotti, Giovanni & Tommasino, Pietro, 2017. "The stock market effects of a securities transaction tax: Quasi-experimental evidence from Italy," Journal of Financial Stability, Elsevier, vol. 31(C), pages 81-92.
    7. Maier, Ulf, 2017. "Regulatory Competition In Capital Standards with Selection Effects among Banks," Rationality and Competition Discussion Paper Series 7, CRC TRR 190 Rationality and Competition.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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