Taxing Bank Leverage: The Effects on Bank Capital Structure, Credit Supply and Risk-Taking
61 Pages Posted: 26 Aug 2016 Last revised: 5 Jun 2018
Date Written: February 1, 2018
We investigate whether taxation can be used to contain bank leverage, while leaving the supply of credit unaffected. We exploit the staggered introduction between 1996 and 2012 across Europe of tax reforms that increase the fiscal cost of leverage. Employing both bank- and loan-level data, we estimate the impact of the reforms on the leverage of banks and their supply of credit. We find that tax reforms that increase the cost of leverage lead banks to rely more on equity, to shift the composition of their assets towards loans, and to expand their lending to firms without incurring more risk.
Keywords: Credit, Bank Leverage, Taxes, Capital Regulation
JEL Classification: E51, E58, G21, G28
Suggested Citation: Suggested Citation