Bank Profitability and Taxation

Ugo Albertazzi and Leonardo Gambacorta

No 364, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: This paper investigates how bank profitability is affected by the corporate income tax (CIT). For this purpose it uses aggregate data of the banking sector of the main industrialized countries, for the period 1980-2003. The main novelties with respect to the existing literature are two. First, it explicitly considers that the CIT is not specific to the banking sector so that changes in CIT rate can affect both banks and borrowing firms. With the help of a simple theoretical model we derive a set of predictions about the impact of the CIT on banks’ income statement. Second, we consider all main components of banks’ profit and loss accounts: net interest income, interest expenses, non-interest income, operating costs, and provisions. In this way, we are able to disentangle the extent to which a bank is able to shift its tax-burden forward to its lenders, depositors, and purchasers of fee-generating services

Keywords: Tax-Shifting; Corporate Income Tax; Bank Profitability (search for similar items in EconPapers)
JEL-codes: C53 G20 G21 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-acc, nep-ban, nep-fin, nep-fmk, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Bank profitability and taxation (2010)
Working Paper: Bank profitability and taxation (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:364

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