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Does Taxation on Banks Tax Bank Borrowers? Evidence from the Tokyo Bank Tax Experiment

  • Peter Hull


    (Federal Reserve Bank of New York)

  • Masami Imai


    (Department of Economics, Wesleyan University)

We investigate the economic impacts of bank taxation on the value of banks and that of borrowing firms, exploiting the surprise announcement of a tax by the Tokyo metropolitan government as a natural experiment. We find that the tax announcement had broad effects on the share prices of banks, although the effects are stronger for a subset of soon-to-be taxed banks. However, the adverse effects of the tax on bank borrowers, although statistically significant, turn out to be quantitatively small (a half of the effects on bank share prices). These results suggest that the adverse economic consequence of bank taxation is felt primarily on banks themselves.

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Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2011-005.

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Length: 11 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:wes:weswpa:2011-005
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  1. Mary Amiti & David E. Weinstein, 2009. "Exports and Financial Shocks," NBER Working Papers 15556, National Bureau of Economic Research, Inc.
  2. Sylla, Richard & Legler, John B. & Wallis, John J., 1987. "Banks and State Public Finance in the New Republic: The United States, 1790–1860," The Journal of Economic History, Cambridge University Press, vol. 47(02), pages 391-403, June.
  3. Michael W. Klein & Joe Peek & Eric S. Rosengren, 2002. "Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit," American Economic Review, American Economic Association, vol. 92(3), pages 664-682, June.
  4. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, October.
  5. Atif Mian & Asim Ijaz Khwaja, 2006. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," NBER Working Papers 12612, National Bureau of Economic Research, Inc.
  6. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
  7. Gibson, Michael S, 1995. "Can Bank Health Affect Investment? Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 68(3), pages 281-308, July.
  8. Adam B. Ashcraft, 2003. "Are banks really special? New evidence from the FDIC-induced failure of healthy banks," Staff Reports 176, Federal Reserve Bank of New York.
  9. Slovin, Myron B & Sushka, Marie E & Polonchek, John A, 1993. " The Value of Bank Durability: Borrowers as Bank Stakeholders," Journal of Finance, American Finance Association, vol. 48(1), pages 247-66, March.
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