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Can taxes tame the banks? Evidence from European bank levies

Author

Listed:
  • Michael P. Devereux

    (Oxford University Centre for Business Taxation)

  • Niels Johannesen

    (University of Copenhagen)

  • John Vella

    (Oxford University Centre for Business Taxation)

Abstract
In the wake of the fi?nancial crisis, a number of countries have introduced levies on bank borrowing with the aim of reducing risk in the ?financial sector. This paper studies the behavioural responses to the bank levies and evaluates the policy. We find that the levies induced banks to borrow less but also to hold more risky assets. The reduction in funding risk clearly dominates for banks with high capital ratios but is exactly offset by the increase in portfolio risk for banks with low capital ratios. This suggests that while the levies have reduced the total risk of relatively safe banks, they have done nothing to curb the risk of relatively risky banks, which presumably pose the greatest threat to fi?nancial stability.

Suggested Citation

  • Michael P. Devereux & Niels Johannesen & John Vella, 2013. "Can taxes tame the banks? Evidence from European bank levies," Working Papers 1325, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:1325
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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