Can Taxes Tame the Banks? Evidence from the European Bank Levies

51 Pages Posted: 21 Jun 2015 Last revised: 20 Feb 2017

See all articles by Michael P. Devereux

Michael P. Devereux

Centre for Business Taxation, Oxford University; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); University of Oxford - Said Business School; University of Oxford - Said Business School

Niels Johannesen

University of Copenhagen

John Vella

University of Oxford - Oxford University Centre for Business Taxation; University of Oxford - Said Business School

Date Written: April 23, 2015

Abstract

In the wake of the 2007-2008 financial crisis, a large number of countries have introduced levies on bank borrowing with the aim of reducing risk in the financial sector. This paper studies the behavioral responses to the bank levies and finds that banks exposed to levies increased their reliance on equity financing, but at the same time increased the risk of their assets. This represents the first empirical evidence of banks shifting risk from the liability side of their balance sheets to the asset side to mitigate the impact of government intervention. Our analysis also shows that while levies were successful in reducing the overall risk of the average bank, the effect was concentrated among banks that pose no or little threat to financial stability.

Suggested Citation

Devereux, Michael P. and Johannesen, Niels and Vella, John, Can Taxes Tame the Banks? Evidence from the European Bank Levies (April 23, 2015). Saïd Business School WP 2015-5. Available at SSRN: https://ssrn.com/abstract=2563634 or http://dx.doi.org/10.2139/ssrn.2563634

Michael P. Devereux (Contact Author)

Centre for Business Taxation, Oxford University ( email )

Said Business School
Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Niels Johannesen

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

John Vella

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

University of Oxford - Said Business School

Park End Street
Oxford, OX1 1HP
Great Britain

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