Working Paper: NBER ID: w18483
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. International double 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: International Taxation; Crossborder Banking; Foreign Direct Investment; Banking Sector Performance
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 of foreign-source bank income (F38) | reduction in banking-sector foreign direct investment (FDI) (F21) |
| international double taxation of foreign-source bank income (F38) | higher interest margins (G21) |
| international double taxation of foreign-source bank income (F38) | banks' pretax profitability (G21) |
| reduction in banking-sector foreign direct investment (FDI) (F21) | higher interest margins (G21) |
| higher international taxation (F38) | interest margins (G21) |