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Loan as a Durable Good and Bank Indirect-Tax Incidence

Gerasimos T. Soldatos and Erotokritos Varelas

MPRA Paper from University Library of Munich, Germany

Abstract: This paper maintains that the durable-goods character of loans enables the forward shift of bank indirect taxes à la Coase (1972), increasing thereby the money multiplier and reducing the equity-lending ratio regardless bank industry structure. Consequently, policymakers may use such taxes countercyclically if, of course, the need for depositor insurance is not exaggerated evoking upon the problems of asymmetric information accompanying lending. Also, the “standard” proposition that the ability to shift indirect taxation forward depends negatively on the size of the elasticity of loan demand, is confirmed here, too. The low elasticity of loan demand is related with relationship banking, contemplating thereby that the mix “bank indirect tax-relationship banking” may prove to be critical for capital accumulation and growth depending on the dissemination of such banking. A zero-bank-profit policy is proposed as a stabilization policy beyond the countercyclical manipulation of the tax.

Keywords: Loan life; Bank indirect-tax incidence; Bank market power; Quantity competition; Capital accumulation (search for similar items in EconPapers)
JEL-codes: E44 G21 H22 H32 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban and nep-mac
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Published in International Journal of Financial Research 1.7(2016): pp. 33-38

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