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

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  • Patrick Honohan

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.

Suggested Citation

  • Patrick Honohan, 2003. "Alternative Approaches to Taxing the Financial Sector: Which is Best and Where Does Chile Stand?," Working Papers Central Bank of Chile 225, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:225
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_225.pdf
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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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    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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