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Taxing Financial Activity

Author

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  • Jack M. Mintz

    () (Rotman School of Management, University of Toronto, and the C.D. Howe Institute)

Abstract

In most countries, substantial business activity is related to financial intermediation: banking, trusts, investment companies and insurance. Financial businesses play a crucial role in the economy by matching lenders with borrowers as well as facilitating governance of businesses through close monitoring of funds lent to businesses. Financial institutions also reduce risk faced by investors by pooling investments over many different types of business activities and insuring against property, casualty and death risks. A significant part of the financial sector is regulated but an impressive array of financial activities is undertaken by unregulated and informal parts of the economy. Unlike other industries, tax systems often treat financial activity in a special way. Why is this so? In this module, I shall review the rationale and technical issues related to the taxation of financial activity by answering the following questions: What is financial intermediation? What are the roles of financial service providers in the economy so as to guide policy makers regarding the appropriate design of taxes? How are individual types of taxes designed to deal with special considerations related to financial activities? What are the economic impacts of taxes on financial activity?

Suggested Citation

  • Jack M. Mintz, 2003. "Taxing Financial Activity," International Tax Program Papers 0305, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  • Handle: RePEc:ttp:itpwps:0305
    as

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    File URL: http://www-2.rotman.utoronto.ca/iib/ITP0305.pdf
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    References listed on IDEAS

    as
    1. Auerbach, Alan J, 1991. "Retrospective Capital Gains Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 167-178, March.
    2. Wendy Dobson & Pierre Jacquet, 1998. "Financial Services Liberalization in the World Trade Organization," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 59.
    3. John Y. Campbell & Kenneth A. Froot, 1994. "International Experiences with Securities Transaction Taxes," NBER Chapters,in: The Internationalization of Equity Markets, pages 277-308 National Bureau of Economic Research, Inc.
    4. Alan J. Auerbach & Roger H. Gordon, 2002. "Taxation of Financial Services under a VAT," American Economic Review, American Economic Association, vol. 92(2), pages 411-416, May.
    5. Harry Huizinga, 1994. "International interest withholding taxation: Prospects for a common European policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 277-291, October.
    6. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Books, National Bureau of Economic Research, Inc, number fran94-1, July.
    7. Greenaway, David, 1995. "Policy Forum: Sand in the Wheels of International Finance: Editorial Note," Economic Journal, Royal Economic Society, vol. 105(428), pages 160-161, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial institutions; taxation; financial intermediation;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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