TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, May 12, 2010

Shackelford, Shaviro & Slemrod: Taxation and the Financial Sector

Douglas A. Shackelford (University of North Carolina, Kenan-Flager Business School), Daniel Shaviro (NYU) & Joel B. Slemrod (University of Michigan, Ross School of Business) have posted Taxation and the Financial Sector on SSRN. Here is the abstract:

In the aftermath of the recent financial crisis, a variety of taxes on financial institutions have been proposed or enacted. These taxes’ justifications range from punishing those deemed to have caused or unduly profited from the crisis, to addressing the budgetary costs of the crisis, to better aligning banks’ and bank executives’ incentives in light of the broader social costs and benefits of their actions. Although there is a long-standing literature on corrective, or Pigouvian, taxation, most of it has been applied to environmental externalities, and the externalities that arise from the actions of financial institution are structurally different. This paper reviews the justifications for special taxes on financial institutions, and addresses what kinds of taxes are most likely to achieve the various stated objectives, which often are in conflict. It then critically assesses the principal such taxes that have been proposed or enacted to date: financial transactions taxes, bonus taxes, and taxes on firms in the financial sector that apply based on size, bank liabilities, or excess profits.

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