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Incidence of Bank Levy and Bank Market Power

Abstract : This is the first analysis of the incidence of a bank tax that is imposed on banks’ balance sheets. Within the framework of an oligopolistic version of the Monti-Klein model, the pass-through of a bank tax levied on loans is stronger when elasticity of credit demand is low. To test this hypothesis, we investigate the incidence of the Hungarian bank tax that was introduced in 2010 on banks’ assets. This case is well suited for our analysis because the tax rate is much higher for large banks than for small banks, which allows relying on difference-in-difference methodology to disentangle the impact of the tax from any other shock that might have occurred simultaneously. In line with model predictions, our estimations show that the tax is shifted to customers with the smallest demand elasticity, such as households. In terms of economic policy implications, our results suggest that enhanced borrower mobility could reduce the ability of banks to shift taxes to customers.
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https://hal.archives-ouvertes.fr/hal-01441765
Contributor : Gunther Capelle-Blancard <>
Submitted on : Friday, January 20, 2017 - 10:49:31 AM
Last modification on : Sunday, January 19, 2020 - 6:38:27 PM

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Gunther Capelle-Blancard, Olena Havrylchyk. Incidence of Bank Levy and Bank Market Power. Review of Finance, Oxford University Press (OUP): Policy F - Oxford Open Option D, 2017, 21 (3), pp.1023-1046. ⟨10.1093/rof/rfw069⟩. ⟨hal-01441765⟩

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