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Boring Banks and Taxes

Rafael Aigner and Felix Bierbrauer ()
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Felix Bierbrauer: University of Cologne

No 2015_07, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: How do taxes in the financial sector affect economic outcomes? We analyze a simple general equilibrium model with financial intermediation. We formalize a trade-off between tax policies that burden the owners of banks and tax policies that burden households. We also study the implications of the financial sector's exemption from value added taxation (VAT). Main results are that an increased taxation of the banks' profits goes together with a larger financial sector, as measured by the volume of loans and the employment in banking. We also show that the general presumption that the VAT-exemption is beneficial for banks is unjustified.

Keywords: Taxation of the financial sector; Financial activities tax; Value added taxation (search for similar items in EconPapers)
JEL-codes: G21 H21 H22 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-pbe and nep-pub
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