Bad Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model

International Tax and Public Finance, Vol. 13, No. 5, pp. 601-624, 2006

Posted: 9 Apr 2004

See all articles by Pedro H. Albuquerque

Pedro H. Albuquerque

KEDGE Business School; Aix-Marseille University - Aix-Marseille School of Economics

Abstract

This paper uses a dynamic general equilibrium model to study the economic effects of bank account debits (BAD) taxation. Australia and various Latin American countries have levied or levy BAD taxes. Aspects such as financial disintermediation, market illiquidity, and impacts on dividend and interest rates are considered. Part of the BAD tax revenue may be fictitious, due to increased interest payments on government debt. The Brazilian BAD tax (CPMF) experience is evaluated. The empirical analysis confirms some theoretical predictions. Incidence base over GDP appears to be sensitive to the tax rate, possibly engendering a Laffer curve. The tax may also cause real interest rates to increase. Furthermore, the deadweight losses are relatively large, even if revenues are small. The theoretical and empirical results suggest that the BAD tax is not adequate for revenue collection.

Keywords: Bank Account Debits Tax, BAD Tax, Financial Transactions Tax, FTT, Currency Transaction Tax, CTT, Automated Payment Transaction Tax, APT Tax, CPMF, Disintermediation, Illiquidity

JEL Classification: E62, H20

Suggested Citation

Albuquerque, Pedro H., Bad Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model. International Tax and Public Finance, Vol. 13, No. 5, pp. 601-624, 2006. Available at SSRN: https://ssrn.com/abstract=527622

Pedro H. Albuquerque (Contact Author)

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

HOME PAGE: http://www.kedgebs.com/en

Aix-Marseille University - Aix-Marseille School of Economics

2 rue de la Charité
Marseille, 13236
France

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