European Parliament Library

Taxation, Bank Leverage, and Financial Crises, Ruud A. Mooij, Michael Keen, Masanori Orihara

That most corporate tax systems favor debt over equity finance is now widely recognized as, potentially, amplifying risks to financial stability. This paper makes a first attempt to explore, empirically, the link between this tax bias and the probability of financial crisis. It finds that greater tax bias is associated with significantly higher aggregate bank leverage, and that this in turn is associated with a significantly greater chance of crisis. The implication is that tax bias makes crises much more likely, and, conversely, that the welfare gains from policies to alleviate it can be substantial—far greater than previous studies, which have ignored financial stability considerations, suggest
Table Of Contents
Cover; Contents; I. Introduction; II. Methodology and Data; A. The Effect of Taxation on Leverage; B. The Effect of Leverage on the Probability of Banking Crisis; Tables; 1. Partition of Banks by Size; C. Simulating Tax Effects on the Probability of Crisis; III. Results; A. The Effect of Taxation on Leverage; 2. Effect of Tax on Leverage: Bank-level Data; 3. Estimated Effect of Tax on Bank Leverage for Alternative Size Groups; 4. Effect of Tax on Leverage: Country-level Data; B. The Effect of Leverage on the Probability of Banking Crisis
Literary Form
non fiction
February 2013
Physical Description
1 online resource (27 p.)
Specific Material Designation
Form Of Item

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