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BAD Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model

Pedro Albuquerque

Public Economics from EconWPA

Abstract: This paper uses a dynamic general equilibrium model to study the economic effects of bank account debits (BAD) taxation. Australia and various Latin American countries have levied or levy BAD taxes. Aspects such as financial disintermediation, market illiquidity, and impacts on dividend and interest rates are considered. Part of the BAD tax revenue may be fictitious, due to increased interest payments on government debt. The Brazilian BAD tax (CPMF) experience is evaluated. The empirical analysis confirms some theoretical predictions. Incidence base over GDP appears to be sensitive to the tax rate, possibly engendering a Laffer curve. The tax may also cause real interest rates to increase. Furthermore, the deadweight losses are relatively large, even if revenues are small. The theoretical and empirical results suggest that the BAD tax is not adequate for revenue collection.

Keywords: Bank Account Debits Tax; BAD Tax; Financial Transactions Tax; FTT; Currency Transaction Tax; CTT; Automated Payment Transaction Tax; APT Tax; CPMF; Disintermediation; Illiquidity (search for similar items in EconPapers)
JEL-codes: H20 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-mac, nep-pbe and nep-pub
Date: 2005-11-26, Revised 2005-12-26
Note: Type of Document - pdf; pages: 37
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Journal Article: BAD taxation: Disintermediation and illiquidity in a bank account debits tax model (2006) Downloads
Working Paper: BAD Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model (2006)
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Handle: RePEc:wpa:wuwppe:0511019