Taxation, Bank Leverage, and Financial Crises
Ruud de Mooij,
Michael Keen and
Masanori Orihara
No 2013/048, IMF Working Papers from International Monetary Fund
Abstract:
That most corporate tax systems favor debt over equity finance is now widely recognized as, potentially, amplifying risks to financial stability. This paper makes a first attempt to explore, empirically, the link between this tax bias and the probability of financial crisis. It finds that greater tax bias is associated with significantly higher aggregate bank leverage, and that this in turn is associated with a significantly greater chance of crisis. The implication is that tax bias makes crises much more likely, and, conversely, that the welfare gains from policies to alleviate it can be substantial—far greater than previous studies, which have ignored financial stability considerations, suggest.
Keywords: WP; leverage; bank; bank leverage; rate; Bank taxation; corporate tax; debt bias; leverage ratio; bank assets; bank loss; bank characteristic; bank leverage ratio; Corporate income tax; Bank levy; Banking crises (search for similar items in EconPapers)
Pages: 26
Date: 2013-02-25
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Citations: View citations in EconPapers (39)
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2013/048
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