The effects of tax on bank liability structure

Leonardo Gambacorta, Giacomo Ricotti (), Suresh Sundaresan () and Zhenyu Wang ()
Additional contact information
Giacomo Ricotti: Bank of Italy
Suresh Sundaresan: Columbia University, Graduate School of Business
Zhenyu Wang: Indiana University, Kelley School of Business

No 1101, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper examines the effects of taxation on the liability structure of banks. We derive testable predictions from a dynamic model of optimal bank liability structure that incorporates bank runs, regulatory closure and endogenous default. Using the supervisory data provided by the Bank of Italy, we empirically test these predictions by exploiting exogenous variations of the Italian tax rates on productive activities (IRAP) across regions and over time (especially since the global financial crisis). We show that banks endogenously respond to a reduction in tax rates by reducing non-deposit liabilities more than deposits in addition to lowering leverage. The response on the asset side depends on the financial strength of the bank: well-capitalized banks respond to a reduction in tax rates by increasing their assets, but poorly-capitalized banks respond by cleaning up their balance sheet.

Keywords: bank liability structure; corporate tax; leverage (search for similar items in EconPapers)
JEL-codes: G21 G32 G38 H25 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 101/en_tema_1101.pdf (application/pdf)

Related works:
Working Paper: The effects of tax on bank liability structure (2017)
Working Paper: The effects of tax on bank liability structure (2017)
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:wptemi:td_1101_17

Access Statistics for this paper

More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().