Taxing banks

In the aftermath of the financial crisis there has been considerable discussion of additional taxes on banks. The UK Labour government introduced a temporary tax on bonuses, and the new coalition government has proposed a tax on liabilities, similar to that envisaged in the USA, France and Germany. At the request of the G20, the IMF produced a report on options for taxation. This research project aims to consider these options, in the light of existing and proposed regulation. The structure of any tax imposed should depend on the aims of the tax. If it is simply to raise revenue, then the tax should be as neutral as possible with respect to bank activity. But if the aim is to reduce risk in the financial sector, then there is a possible conflict with regulation. For example, given capital requirements, it is possible that a tax on liabilities would either be ineffective, or conflict with those requirements. These issues need more careful consideration.

Michael Devereux and Clemens Fuest