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Taxation and the Financial Sector

29 Pages Posted: 9 May 2010 Last revised: 22 Sep 2012

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

Daniel Shaviro

New York University School of Law

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: June 1, 2010

Abstract

In the aftermath of the recent financial crisis, a variety of taxes on financial institutions have been proposed or enacted. These taxes’ justifications range from punishing those deemed to have caused or unduly profited from the crisis, to addressing the budgetary costs of the crisis, to better aligning banks’ and bank executives’ incentives in light of the broader social costs and benefits of their actions. Although there is a long-standing literature on corrective, or Pigouvian, taxation, most of it has been applied to environmental externalities, and the externalities that arise from the actions of financial institution are structurally different. This paper reviews the justifications for special taxes on financial institutions, and addresses what kinds of taxes are most likely to achieve the various stated objectives, which often are in conflict. It then critically assesses the principal such taxes that have been proposed or enacted to date: financial transactions taxes, bonus taxes, and taxes on firms in the financial sector that apply based on size, bank liabilities, or excess profits.

Keywords: financial institutions, Pigouvian taxation, 2008 financial crisis, financial reform, financial transactions tax, financial activities tax, bonus taxes

JEL Classification: G20, G21, G28, H20, H21, H23, H25

Suggested Citation

Shackelford, Douglas A. and Shaviro, Daniel and Slemrod, Joel B., Taxation and the Financial Sector (June 1, 2010). NYU School of Law, Public Law Research Paper No. 10-30; NYU Law and Economics Research Paper No. 10-25. Available at SSRN: https://ssrn.com/abstract=1601330 or http://dx.doi.org/10.2139/ssrn.1601330

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3197 (Phone)
919-962-4727 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Daniel Shaviro (Contact Author)

New York University School of Law ( email )

40 Washington Square South
Room 314-B
New York, NY 10012-1099
United States
212-998-6187 (Phone)
212-995-4341 (Fax)

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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