Tax Effects on Bank Liability Structure
Abstract
Using supervisory data, we test the tax effects on the liability structure (the composition of deposits and other forms of debt) of the credit cooperative banks (BCC) by exploiting exogenous variations in the rates of tax on productive activities (IRAP) across Italian regions and over time. The testable predictions are derived from a model of bank liability structure that incorporates regulatory closure, endogenous default, and deposit insurance. We show that banks endogenously respond to tax cuts mainly by reducing non-deposit debt ratios, instead of deposit ratios, when lowering leverage. The overall liability structure adjustment substantially reduces non-equity funding costs.
Download PDF
Citation
Gambacorta, Leonardo, Giacomo Ricotti, M. Suresh Sundaresan, and Zhenyu Wang. "Tax effects on bank liability structure." European Economic Review (forthcoming).
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.