Edited by Sajid Chaudhry and Andrew W Mullineux
Chapter 4: The burden of bank taxation: corporate income tax vs. bank levy
In the aftermath of the financial crisis, several projects of additional bank taxation have emerged. Overall, such bank levies are very popular in public opinion: according to the European Commission’s Eurobarometer (No. 74, 2011), 81 percent of Europeans are in favor of a tax on banks. New levies are imposed on some elements of banks’ balance sheets, but their details and objectives differ from one country to another (see Table 4.1). In Germany and Sweden, the revenues go to a special reserve fund to ensure that taxpayers’ money will not be used for future bailouts. In Hungary, France and the UK, the authorities have decided against a resolution fund because of moral hazard concerns and, hence, revenues go to the budget. Many proponents of the bank levy argue that it could be designed as a Pigouvian tax that would serve as a macro-prudential tool to discourage risky activities (Keen, 2011; Devereux, 2013). To this end, in the UK and Germany the tax is levied on volatile short-term funding while stable funding, such as equity and deposits, are excluded, whereas in France the tax is levied on the regulatory capital. Another motivation behind the current tax proposals is related to possible economic rents enjoyed by the financial sector due to implicit and explicit state guarantees. Additional levies could also offset tax distortions due to the fact that financial services are exempt from VAT and lend themselves to fiscal optimization (Huizinga, 2002).
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