Gaëtan Nicodème

Are international deposits tax-driven

This paper investigates the impact of tax policy on international depositing. Non-bank international deposits are shown to be positively related to interest income and wealth taxes and to the presence of domestic bank interest reporting. This suggests that international deposits are in part intended to facilitate tax evasion. The tax sensitivity of international deposits is estimated to be higher in 1999 than before. At present, only part of international interest flow are covered by either non-resident interest withholding taxes or international exchange of information. This incomplete coverage may be a reason that these policies currently appear to have little impact on international depositing.The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They should not be attributed to the European Commission.

Financial Activities Taxes, Bank Levies and Systemic Risk

The question of additional taxes on banking institutions has recently been debated.At the same time, financial regulation in the banking sector is undergoing many changes aimed at strengthening financial stability. This paper uses SYMBOL, a micro-simulation model of the banking system, to estimate contributions to systemic risk of individual banks under various future regulatory scenarios and compares them to their potential tax liabilities under alternative designs of Financial Activity Taxes and Bank Levies. The results show that when contagion is not avoided, all taxes perform about the same way. However, when contagion is avoided, bank levies outperform FATs.

Debt Bias in Corporate Taxation and the Costs of Banking Crises in the EU

During the period 2008-2012, EU governments incurred substantial costs bailing out banks. As corporate income taxation (CIT) in most countries still favors debt- over equityfinancing, reducing or eliminating this debt bias would complement regulatory reforms reducing costs of financial crises. To estimate this effect, we use a two-step approach. First, using panel regressions on a dataset of 32,833 bank-year observations we find sizable long-run effects of CIT on leverage in the EU. Second, we simulate the effect of tax reforms on bank losses using a Vasicek-based model with actual banks’ balance sheets to estimate costs of systemic crises for six large EU member states. Even if the tax elasticity of bank leverage is taken at the lower end of the ranges found in recent literature, eliminating the debt bias could lead to reductions of public finance losses in the range of 60 to 90%. The results hold even when considering much smaller effects for banks that are close to the regulatory minimum capital requirement of the Basel III framework. Even when asset portfolio risk is allowed to increase endogenously and considering conservative ranges of the parameter space, we conclude that tax reforms to remove the debt bias can result in very sizable reductions in risks and costs of financial crises.

Efficiency and Equity Effects of Taxing the Financial Sector: Lessons from a CGE Model for Belgium

This paper assesses the effects of applying VAT or a sales tax on (intermediate or final) sales of the financial sector. It uses a CGE Model calibrated for a small open economy. It highlights the differentiated sectoral and redistributional effects of these taxes and shows the importance of the financial openness of the economy on these results.