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Alternative Approaches to Taxing the Financial Sector: Wich is Best and Where Does Chile Stand?

In: Banking Market Structure and Monetary Policy

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  • Patrick Honohan

    (Centre for Economic Policy Research)

Abstract

In contrast to the enthusiasm of some observers for sweeping reforms to financial sector taxation (such as abolishing taxation of capital income or introducing a universal transactions tax), this paper argues that practical policy needs to pay special attention to the potential for tax arbitrage, and to avoiding a system that is too sensitive to inflation. A review of the main features of Chile's financial sector taxation regime (in particular the stamp taxes on checks and on loans) against this background shows some strengths, though the rates are somewhat higher than would result from a VAT applied systematically to financial services at the standard rate.
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Suggested Citation

  • Patrick Honohan, 2004. "Alternative Approaches to Taxing the Financial Sector: Wich is Best and Where Does Chile Stand?," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking Market Structure and Monetary Policy, edition 1, volume 7, chapter 11, pages 315-344, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v07c11pp315-344
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    1. Huizinga, Harry & Nicodeme, Gaetan, 2004. "Are international deposits tax-driven," Journal of Public Economics, Elsevier, vol. 88(6), pages 1093-1118, June.
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    3. Martin S. Feldstein, 1999. "Capital Income Taxes and the Benefit of Price Stability," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 9-46, National Bureau of Economic Research, Inc.
    4. Feldstein, Martin, 2009. "Inflation, Tax Rules, and Capital Formation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226241791.
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    6. Martin Feldstein, 1999. "The Costs and Benefits of Price Stability," NBER Books, National Bureau of Economic Research, Inc, number feld99-1.
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    Cited by:

    1. Honohan, Patrick, 2003. "Avoiding the pitfalls in taxing financial intermediation," Policy Research Working Paper Series 3056, The World Bank.

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