Taxation and Financial Intermediation: Evidence from a Quasi-Natural Experiment
56 Pages Posted: 29 Nov 2017 Last revised: 27 Oct 2018
Date Written: October 25, 2018
In this study, we investigate the impact of taxes on bank loan supply, loan and deposit pricing, and the monitoring effort of banks. Using 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: Suggested Citation