XXV Edition

1-2 December 2016"

The Effects of Taxation on Bank Margins: Evidence from a Quasi-Natural Experiment

Sobiech Anna Lucia, University of St Andrews
Banerji Sanjay , University of Nottingham
Wilson John O. S., University of St Andrews
Chronopoulos Dimitris K., University of St Andrews

This paper conducts an empirical investigation of the impact of taxes on the behaviour and performance of banks. Using a difference-in-differences approach that relies on the exogenous variation of tax imposed on gross profits of Japanese banks operating in Tokyo (known as the Tokyo bank tax) we find that a tax on bank margins causes affected banks to increase both net interest margins, and net interest and fee margins. Further analysis suggests that depositors are most affected by adjustments to interest and fee rates at banks following the imposition of the tax. Furthermore, the imposition of the Tokyo bank tax reduced the lending of affected banks relative to non-affected counterparts.

Area: Banking

Keywords: Banking, Taxation, Diff-in-Differences

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