Working Paper: CEPR ID: DP8436
Authors: Harry Huizinga; Johannes Voget; Wolf Wagner
Abstract: This paper examines empirically how international taxation affects the volume and pricing of cross-border banking activities for a sample of banks in 38 countries over the 1998-2008 - period. Home country corporate income taxation of foreign-source bank income is found to reduce banking-sector FDI. Furthermore, such taxation is almost fully passed on into higher interest margins charged abroad. These results imply that international double taxation distorts the activities of international banks, and that the incidence of international double taxation of banks is on bank customers in the foreign subsidiary country. Our analysis informs the debate about additional taxation of the financial sector that has emerged in the wake of the recent financial crisis.
Keywords: crossborder banking; interest margins; international taxation
JEL Codes: F23; G21; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International double taxation (H26) | Higher interest margins (G21) |
| Home country corporate income taxation of foreign-source bank income (F21) | Decreased banking-sector FDI (F65) |
| International double taxation of dividends (G35) | Higher interest margins (G21) |
| International double taxation (H26) | No significant effect on banks' pretax profitability (G21) |
| International double taxation (H26) | Decreased number of foreign banks (F65) |