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BAD Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model

  • Pedro H. Albuquerque

    (Texas A&M International University)

This paper uses a dynamic general equilibrium model to study the economic effects of bank account debits (BAD) taxation. Australia and various Latin American countries have levied or levy BAD taxes. Aspects such as financial disintermediation, market illiquidity, and impacts on dividend and interest rates are considered. Part of the BAD tax revenue may be fictitious, due to increased interest payments on government debt. The Brazilian BAD tax (CPMF) experience is evaluated. The empirical analysis confirms some theoretical predictions. Incidence base over GDP appears to be sensitive to the tax rate, possibly engendering a Laffer curve. The tax may also cause real interest rates to increase. Furthermore, the deadweight losses are relatively large, even if revenues are small. The theoretical and empirical results suggest that the BAD tax is not adequate for revenue collection.

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File URL: http://econwpa.repec.org/eps/pe/papers/0511/0511019.pdf
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Paper provided by EconWPA in its series Public Economics with number 0511019.

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Length: 37 pages
Date of creation: 26 Nov 2005
Date of revision: 27 Nov 2005
Handle: RePEc:wpa:wuwppe:0511019
Note: Type of Document - pdf; pages: 37
Contact details of provider: Web page: http://econwpa.repec.org

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  13. Pedro H. Albuquerque & Solange Gouvea, 2005. "Canaries and Vultures: A Quantitative History of Monetary Mismanagement in Brazil," Development and Comp Systems 0511027, EconWPA.
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