Taxing Bank Leverage: The Effects on Bank Portfolio Allocation
69 Pages Posted: 26 Aug 2016 Last revised: 25 Sep 2020
Date Written: September 23, 2020
Do banks change their portfolio allocation when facing fiscal reforms that increase the relative cost of their debt? Studying various fiscal reforms across Europe with bank- and loan-level data, we find that both the introduction of an equity subsidy and of a tax on bank liabilities lead banks to refocus their activities on lending. Hence, taxes can be a complementary tool to capital requirements to reduce bank leverage, while maintaining the supply of credit. More broadly, our findings demonstrate how bank balance sheets may play a role in the transmission of fiscal reforms to the real economy.
Keywords: Credit, Bank Leverage, Taxes, Capital Regulation
JEL Classification: E51, E58, G21, G28
Suggested Citation: Suggested Citation