The tax system and the financial crisis
Vieri Ceriani (),
Giacomo Ricotti (),
Alessandra Sanelli () and
Ernesto Zangari ()
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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
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: H2 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-cis, nep-hme, nep-pub and nep-ure
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Journal Article: The tax system and the financial crisis (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_85_11
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