Chapter

Taxation and the Financial Sector

Douglas A. Shackelford, Daniel N. Shaviro and Joel Slemrod

in Taxation and the Financial Crisis

Published in print February 2012 | ISBN: 9780199698165
Published online May 2012 | e-ISBN: 9780191738630 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199698165.003.0006

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In the aftermath of the 2008 financial crisis, a variety of taxes on financial institutions have been proposed or enacted. The justifications for these taxes range from punishing those deemed to have caused or unduly profited from the crisis, to addressing the budgetary costs of the crisis, to better aligning banks’ and bank executives’ incentives in the light of the broader social costs and benefits of their actions. Although there is a long-standing literature on corrective, or Pigouvian, taxation, most of it has been applied to environmental externalities, and the externalities that arise from the actions of financial institutions are structurally different. This chapter reviews the justifications for special taxes on financial institutions, and addresses what kinds of taxes are most likely to achieve the various stated objectives, which are often in conflict. It then critically assesses the principal taxes that have been proposed or enacted to date: financial transactions taxes, bonus taxes, and taxes on firms in the financial sector based on size, bank liabilities, or excess profits.

Keywords: financial institutions; Pigouvian taxation; 2008 financial crisis; financial reform; financial transactions tax; financial activities tax; bonus taxes

Chapter.  11681 words. 

Subjects: Financial Markets

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