Taxation and Financial Intermediation: Evidence from a Quasi-Natural Experiment

60 Pages Posted: 29 Nov 2017  

Sanjay Banerji

University of Nottingham

Dimitris K. Chronopoulos

University of St. Andrews - School of Management

Anna L. Sobiech

University of St Andrews, School of Management

John O. S. Wilson

University of St. Andrews

Date Written: November 23, 2017

Abstract

In this study, we investigate the impact of taxes on loan supply, pricing of loans and deposits, and the monitoring efforts of banks. Using a difference-in-differences approach, which relies on the exogenous variation of tax imposed on gross profits of Japanese banks operating in Tokyo (known as the Tokyo bank tax), we find that affected banks increase both net interest margins, and net interest and fee margins. Depositors are most affected by adjustments to interest and fee rates at banks following the imposition of the tax. The imposition of the Tokyo bank tax also reduces the credit supply of affected banks relative to non-affected counterparts. Moreover, banks subject to the Tokyo bank tax appear to reduce effort devoted to the monitoring of existing borrowers.

Keywords: bank taxation, net interest margin, Japanese banks, natural experiment, monitoring

JEL Classification: G21, G28

Suggested Citation

Banerji, Sanjay and Chronopoulos, Dimitris K. and Sobiech, Anna Lucia and Wilson, John O. S., Taxation and Financial Intermediation: Evidence from a Quasi-Natural Experiment (November 23, 2017). Available at SSRN: https://ssrn.com/abstract=3076839 or http://dx.doi.org/10.2139/ssrn.3076839

Sanjay Banerji

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Dimitris K. Chronopoulos

University of St. Andrews - School of Management ( email )

The Gateway
North Haugh
St. Andrews, Fife, Scotland KY16 9SS
United Kingdom

Anna Lucia Sobiech (Contact Author)

University of St Andrews, School of Management ( email )

The Gateway
North Haugh
St Andrews, KY16 9RJ
United Kingdom

John O. S. Wilson

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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