Who Truly Bears (Bank) Taxes? Evidence from Only Shifting Statutory Incidence

57 Pages Posted: 15 Dec 2020

See all articles by David Martinez-Miera

David Martinez-Miera

Universidad Carlos III de Madrid - Department of Business Administration; Center for Economic Policy Research

Gabriel Jiménez

Banco de España

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2020

Abstract

We show strong overall and heterogeneous economic incidence effects, as well as distortionary effects, of only shifting statutory incidence (i.e., the agent on which taxes are levied), without any tax rate change. For identification, we exploit a tax change and administrative data from the credit market: (i) a policy change in 2018 in Spain shifting an existing mortgage tax from being levied on borrowers to being levied on banks; (ii) some areas, for historical reasons, were exempt from paying this tax (or have different tax rates); and (iii) an exhaustive matched credit register. We find the following robust results: First, after the policy change, the average mortgage rate increases consistently with a strong – but not complete – tax pass-through. Second, there is a large heterogeneity in such pass-through: larger for borrowers with lower income, a smaller number of lending relationships, not working for the lender, or facing less banks in their zip-code, thereby suggesting a bargaining power mechanism at work. Third, despite no variation in the tax rate, and consistent with the non-full tax pass-through, the tax shift increases banks’ risk-taking. More affected banks reduce costly mortgage insurance in case of loan default (especially so if banks have weaker ex-ante balance sheets) and expand into non-affected but (much) ex-ante riskier consumer lending, experiencing even higher ex-post defaults within consumer loans.

Keywords: taxes, incidence, banks, inequality, risk-taking, mortgages

JEL Classification: E51, G21, G28, G51, H22

Suggested Citation

Martinez-Miera, David and Jimenez, Gabriel and Peydro, Jose-Luis, Who Truly Bears (Bank) Taxes? Evidence from Only Shifting Statutory Incidence (December 1, 2020). LawFin Working Paper No. 12, Available at SSRN: https://ssrn.com/abstract=3745519 or http://dx.doi.org/10.2139/ssrn.3745519

David Martinez-Miera (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Center for Economic Policy Research ( email )

London
United Kingdom

Gabriel Jimenez

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

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