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Taxation, Banking, and Sovereign Risk

English title Taxation, Banking, and Sovereign Risk
Applicant Keuschnigg Christian
Number 146685
Funding scheme Project funding (Div. I-III)
Research institution Institut für Finanzwissenschaft und Finanzrecht Universität St.Gallen
Institution of higher education University of St.Gallen - SG
Main discipline Economics
Start/End 01.04.2013 - 31.03.2015
Approved amount 109'245.00
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Keywords (6)

Financial Contagion; Corporate Finance; Banking Union; Bank Regulation; Taxation of Banks; Sovereign Debt

Lay Summary (German)

Lead
Dieses Forschungsprojekt entwickelt mikroökonomische Modelle, um die Wirkungen von Besteuerung und Regulierung insbesondere von Banken zu analysieren. Dabei wird auch untersucht, inwieweit ein supranationaler Ansatz wie die Bankenunion Effizienz und Stabilität erhöhen kann.
Lay summary

Ziel

Ziel dieses Projekts ist es, basierend auf der mikroökonomischen Banken- und Steuerliteratur, Modelle zu entwickeln, um Massnahmen im Bereich Besteuerung sowie Bankenaufsicht und -regulierung zu analysieren. Die Modelle zeichnen sich durch die explizite Berücksichtigung der Investitions- und Finanzierungsentscheidungen von Banken und Firmen bei der Gestaltung optimaler Wirtschaftspolitik aus.

Hintergrund

Seit der Finanzkrise stehen Banken und Staatsschulden im Zentrum der wirtschaftspolitischen Debatte. Vorschläge zur Verbesserung der Finanzstabilität umfassen vorwiegend Kapitalregulierung und Steuern. Vor dem Hintergrund der geplanten Europäischen Bankenunion, wird das Projekt zuerst den Zusammenhang von Finanzstabilität und Staatsschulden herausarbeiten sowie nationale und supranationale Ansätze bei Bankenregulierung und -aufsicht aus wohlfahrtsökonomischer Sicht vergleichen. Zweitens werden wir die Möglichkeit der Besteuerung von Banken erörtern und dabei die Frage, inwieweit Pigou-Steuern Bankenregulierung ergänzen können, diskutieren. Aufbauend auf unseren bisherigen Beiträgen zu Corporate Finance untersucht das Projekt schliesslich die Rolle der Unternehmensbesteuerung bei der Reallokation von Kapital von grossen, überinvestierenden hin zu kleinen, innovativen aber finanzierungsbeschränktem Unternehmen, welche Effizienz und Produktivität verbessert.

Bedeutung

Das Projekt verknüpft Ansätze aus der Finanzwissenschaft mit der Banking und Corporate Finance Literatur. Diese Innovation ist besonders sinnvoll, da viele der diskutierten Massnahmen in der Finanzwissenschaft zwar intensiv analysiert werden, Unternehmen und Banken dabei aber oft in sehr reduzierter Form dargestellt sind. Für die Analyse der gegenwärtigen Krise und der Wirkung von Regulierung und Steuern, sind jedoch die Entscheidungen der Banken (z.B. Leverage, Kreditvergabe) von besonderer Relevanz.

 

Direct link to Lay Summary Last update: 02.04.2013

Responsible applicant and co-applicants

Employees

Publications

Publication
Innovation, Trade and Finance
Keuschnigg Christian, Egger Peter (2015), Innovation, Trade and Finance, in American Economic Journal: Microeconomics , 7(2), 121-157.
Corporate Taxes and Internal Borrowing Within Multinational Firms
Keuschnigg Christian, Egger Peter, Merlo Valeria, Wamser Georg (2014), Corporate Taxes and Internal Borrowing Within Multinational Firms, in American Economic Journal: Economic Policy , 6(2), 54-93.

Collaboration

Group / person Country
Types of collaboration
Prof. Peter Egger, ETH, Zürich Switzerland (Europe)
- Publication

Scientific events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
RGS Doctoral Conference, Dortmund, 26-28.2.2014 and WIEM - Warsaw International Economic Meeting Talk given at a conference Bank Risk Taking, Moral Hazard, and Prudential Regulation: A Welfare Analysis 10.07.2014 Warsaw, Poland Kogler Michael;
Tübingen Workshop on Tax Policy and the Activities of Multinational Firms Talk given at a conference Personal Income Taxes, Corporate Profit Taxes and the Heterogeneous Tax Sensitivity of Firm-level Investment 21.06.2014 Tübingen, Germany Keuschnigg Christian;
TAPES 2014 Trans-Atlantic Public Economics Seminar, Talk given at a conference Personal Income Taxes, Corporate Profit Taxes and the Heterogeneous Tax Sensitivity of Firm-level Investment 16.06.2014 Vienna, Austria Keuschnigg Christian;
Free University of Berlin Individual talk Profit Taxation, Innovation and the Financing of Heterogeneous Firms 17.04.2014 Berlin, Germany Keuschnigg Christian;
RGS Doctoral Conference in Economics Talk given at a conference On the Incidence of Bank Levies: Theory and Evidence 26.02.2014 Essen, Germany Kogler Michael;


Self-organised

Title Date Place

Communication with the public

Communication Title Media Place Year
Media relations: print media, online media Wieviel Ertrag und Risiko im österreichischen Bankensektor Policy Brief, Mai 2015, Universität St. Gallen German-speaking Switzerland International 2015
Media relations: print media, online media Bankenunion IHS Standpunkt Nr. 17 und Österreichische Gesellschaft für Europapolitik, ÖGfE Policy Brief 1'2014, German-speaking Switzerland International 2014
Media relations: print media, online media Besteuerung und Regulierung von Banken - Von der Finanzkrise zu stabilem Wachstum IHS Policy Brief 7, 2014, und Universität St. Gallen German-speaking Switzerland International 2014
Media relations: print media, online media Hypo Alpe Adria IHS Standpunkt Nr. 19, 21.2.2014 International 2014

Associated projects

Number Title Start Funding scheme
129556 Corporate Finance, Taxation and Economic Performance 01.05.2010 Project funding (Div. I-III)

Abstract

Since the recent financial crisis, banking has become one of the key topics Drawing on the literature in banking, corporate finance, and public economics, our research project will primarily develop and analyze theoretical models to investigate three related research topics: First, con-necting to our previous research in corporate finance, we will examine how the reallocation of capital from large, overinvesting to small, innovative but credit constrained firms will affect productivity and boost efficiency in the economy. This part will especially focus on the role of dividend, capital gains and corporate taxes. Second, we will investigate the taxation of banks, including the effect of the debt-bias of corporate income taxes on the bank’s capital structure. Given the banks’ leverage choices and risk-taking incentives, we will also discuss whether and how Pigovian taxation might be complementary to bank regulation. Third, we aim to explore the interaction of bank stability and sovereign debt and examine the role of a European ‘banking union’ from a public economics (fiscal federalism) perspective, thereby emphasizing the scope for centralized bank regulation and supervision. Importantly, this analysis will highlight the channels of risk spillover across banks, between the financial and public sectors, and between countries through international banking lending. A welfare comparison of the decentralized equilibrium to a first best allocation will characterize the precise nature of market distortions, such as a tendency towards excessive leverage and risk-taking in the banking sector, and identify the possibilities for welfare-increasing policy interventions. In addition to theoretical work, model calibration will provide numerical examples, and an empirical analysis will test and quantify some theoretical predictions.The existing literature analyzes the role of banks in the economy, primarily liquidity insurance and moni-toring. Although banks alleviate financial frictions during normal times, they can be a major source of instability during crisis times. The major reason is the inherent fragility of a bank’s balance sheet due to ma-turity transformation and high leverage. Consequently, banks are particularly vulnerable to shocks and susceptible to runs and contagion which calls for regulation and, possibly, Pigovian taxation. Interbank lending and the possibility of fire sales give rise to contagion across banks. Most importantly, banking crises may spill over to the public sector because of the need to bail out distressed banks and the fiscal cost of recessions triggered by financial crises. Rising public debt, in turn, tends to undermine investors’ confidence in government solvency and may trigger a public debt crisis. A rising risk premium and declining value of sovereign debt holdings lead to a further deterioration of banks’ balance sheets. Conversely, the financial sector may amplify a public debt crisis due to high sovereign bond holdings of domestic banks and the importance of government bonds as collateral. This mechanism can also lead to international contagion through the banking sector. A banking union involves centralized regulation, supervision, and resolution of distressed banks and internalizes international spillovers of national regulation. It could help to break the vicious link between bank and sovereign risk, but also holds the potential of substantial cross-country transfers if not appropriately designed.
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