The tax system and the financial crisis

Vieri Ceriani (), Stefano Manestra, Giacomo Ricotti (), Alessandra Sanelli () and Ernesto Zangari ()
Additional contact information
Vieri Ceriani: Banca d'Italia
Giacomo Ricotti: Banca d'Italia
Alessandra Sanelli: Banca d'Italia

No 85, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper investigates the effects of the tax system on the economic factors that triggered the financial crisis. We examine three cases in which the tax regime interacted with these factors, reinforcing them. First, we focus on the taxation of residential building: while the importance of capital gains taxes is disputed, the deductibility of mortgage interest may have contributed to the financial crisis by creating some of the raw materials for the securitization industry. Second, a narrow perspective on the tax treatment, together with specific provisions, may have fostered performance-based remuneration of managers, resulting in overemphasis of short-term profitability and incentive to excessive risk-taking. Third, the securitization process, which played a key role in the outbreak of the financial crisis, was accompanied by opportunities for tax arbitrage and reduction of the overall tax wedge paid by investors, through offset of incomes that are ordinarily taxed at different rates; a de facto exemption of CDS premiums received by non-residents supplemented the tax arbitrage.

Keywords: taxation; financial crisis; housing market; stock options; securitization; credit default swaps (search for similar items in EconPapers)
JEL-codes: G1 H2 (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-acc, nep-cis, nep-hme, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://www.bancaditalia.it/pubblicazioni/qef/2011-0085/QEF_85.pdf (application/pdf)

Related works:
Journal Article: The tax system and the financial crisis (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_85_11

Access Statistics for this paper

More papers in Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().