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Liability taxes, risk, and the cost of banking crises

Andrea Bellucci, Serena Fatica, Wouter Heynderickx, Virmantas Kvedaras and Andrea Pagano

Journal of Corporate Finance, 2023, vol. 79, issue C

Abstract: This study investigates the effects on risk and financial stability of the taxes on bank liabilities introduced across European countries after the global financial crisis. Using a difference-in-differences setup, we show that banks responded to the implementation of liability taxes by reducing their interbank exposure, and by increasing both equity, at least in the short term, and the risk weight of their assets. When we consider these adjustments in a microsimulation model for bank portfolio losses, we find that liability taxes reduce risk in the banking sector and could therefore decrease the cost of crises.

Keywords: Financial sector taxation; Banks; Capital structure; Asset risk (search for similar items in EconPapers)
JEL-codes: G21 G30 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:79:y:2023:i:c:s0929119923000366

DOI: 10.1016/j.jcorpfin.2023.102387

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