How Effective Are Bank Levies in Reducing Leverage Given the Debt Bias of Corporate Income Taxation?

Diskussionspapiere extern

Franziska Bremus, Kirsten Schmidt, Lena Tonzer

Vienna: SUERF, 2020, 6 S.
(SUERF Policy Briefs ; 21/2020)

Abstract

To finance resolution funds, the regulatory toolkit has been expanded in many countries by bank levies. In addition, these levies are often designed to reduce incentives for banks to rely excessively on wholesale funding resulting in high leverage ratios. At the same time, corporate income taxation biases banks’ capital structure towards debt financing in light of the deductibility of interest on debt. A recent paper published in the Journal of Banking and Finance shows that the implementation of bank levies can significantly reduce leverage ratios, however, only in case corporate income taxes are not too high. The result demonstrates that the effectiveness of regulatory tools can depend upon non-regulatory measures such as corporate taxes, which differ at the country level.

Franziska Bremus

Wissenschaftliche Mitarbeiterin in der Abteilung Makroökonomie



JEL-Classification: G21;G28;L51
Keywords: Bank levies, debt bias of taxation, bank capital structure
Externer Link:
https://www.suerf.org/suer-policy-brief/15905/how-effective-are-bank-levies-in-reducing-leverage-given-the-debt-bias-of-corporate-income-taxation