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Bank Profitability and Taxation

  • Ugo Albertazzi

    (Research Department Banca d'Italia)

  • Leonardo Gambacorta


    (Research Department Banca d'Italia)

This paper investigates how bank profitability is affected by the corporate income tax (CIT). For this purpose it uses aggregate data of the banking sector of the main industrialized countries, for the period 1980-2003. The main novelties with respect to the existing literature are two. First, it explicitly considers that the CIT is not specific to the banking sector so that changes in CIT rate can affect both banks and borrowing firms. With the help of a simple theoretical model we derive a set of predictions about the impact of the CIT on banks’ income statement. Second, we consider all main components of banks’ profit and loss accounts: net interest income, interest expenses, non-interest income, operating costs, and provisions. In this way, we are able to disentangle the extent to which a bank is able to shift its tax-burden forward to its lenders, depositors, and purchasers of fee-generating services

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 364.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:364
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