The Effects of Taxing Bank Transactions on Bank Credit and Industrial Growth: Evidence from Latin America
48 Pages Posted: 30 Jun 2017 Last revised: 13 Feb 2019
Date Written: February 3, 2019
This paper studies the bank credit and industry growth effects stemming from the introduction of a tax on bank debits. Using a sample of Latin American countries that implemented this tax at different times between 1986 and 2005, I exploit a key channel through which this levy affects the supply of credit: it creates a strong incentive to shift away from holding deposits and into using cash and other quasi-currencies. I find that taxing bank transactions has a significant negative effect on economic growth, mainly by reducing the growth prospects of industries that are more susceptible to financing frictions.
Keywords: Bank account debit taxes, bank transaction taxes, bank credit, industry growth
JEL Classification: G21, G30, E44, H22
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