On the incidence of bank levies: theory and evidence

Michael Kogler ()

International Tax and Public Finance, 2019, vol. 26, issue 4, No 1, 677-718

Abstract: Abstract In the aftermath of the financial crisis, several European countries have introduced levies on bank liabilities. The aim is to compensate taxpayers for the provision of bailouts and guarantees and to internalize the fiscal costs of future banking crises. This paper studies the tax incidence: Building on the Monti–Klein model, we predict that banks shift the tax mainly to borrowers by raising lending rates and that deposit rates may increase because deposits are partly exempt. Bank-level evidence from 23 EU countries (2007–2013) shows that the levy indeed increases the lending and the deposit rate as well as the net interest margin. Banks adjust differently to this tax depending on the composition of their balance sheets: In line with theory, especially those banks with a high loan-to-deposit ratio raise the interest rates. Market concentration and the capital structure influence the magnitude of the pass-through, which is stronger in concentrated markets and weaker in case of banks with a high regulatory capital ratio.

Keywords: Bank levy; Taxation of banks; Tax incidence; Pigovian taxes (search for similar items in EconPapers)
JEL-codes: G21 G28 H22 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:26:y:2019:i:4:d:10.1007_s10797-018-9526-z

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DOI: 10.1007/s10797-018-9526-z

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