Abstract

http://ssrn.com/abstract=1135532
 
 

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Interest Income Tax Evasion, the EU Savings Directive, and Capital Market Effects


Tina Klautke


Goethe University Frankfurt

Alfons J. Weichenrieder


University of Frankfurt - Chair of Public Finance; CESifo (Center for Economic Studies and Ifo Institute); Vienna University of Economics and Business Administration

May 1, 2008

CESifo Working Paper Series No. 2300

Abstract:     
The Savings Directive has been celebrated as a major political break-through in coordinating taxation in Europe. Against this background, the present paper evaluates the real-world effects of this directive. The directive has left a loophole by providing grandfathering (exemption from withholding tax) for some securities. In this paper we compare the pre-tax returns of exempt bonds and comparable taxable bonds. If working around the Savings Directive is difficult for tax evaders in Europe, then investors should be willing to pay a premium for bonds that are exempt from the withholding rate. Conversely, if such a premium is absent, then we may conclude that the supply of existing loopholes (exempt bonds included) is large enough to allow tax evaders to continue evasion at no additional cost. The findings of our study are in line with this latter interpretation.

Number of Pages in PDF File: 22

Keywords: Savings Directive, interest taxation, tax capitalization, Austria, Belgium Luxembourg, Liechtenstein

JEL Classification: H24, G12, G15

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Date posted: May 21, 2008  

Suggested Citation

Klautke, Tina and Weichenrieder, Alfons J., Interest Income Tax Evasion, the EU Savings Directive, and Capital Market Effects (May 1, 2008). CESifo Working Paper Series No. 2300. Available at SSRN: http://ssrn.com/abstract=1135532

Contact Information

Tina Klautke
Goethe University Frankfurt ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
Alfons J. Weichenrieder (Contact Author)
University of Frankfurt - Chair of Public Finance ( email )
Mertonstr. 17
P.O. Box 11932
60054 Frankfurt (Main)
Germany
HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschinger Str. 5
Munich, DE-81679
Germany
Vienna University of Economics and Business Administration ( email )
Welthandelsplatz 1
Vienna, Wien 1020
Austria
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