By Honohan P.
Taxing the monetary zone, course and ultimately, has lengthy been really effortless even for governments with restricted taxing capability. yet becoming understanding of the strategic significance of the monetary area in catalyzing fiscal development has led governments to re-evaluate the monetary sector's capability as a budgetary cash-cow. certainly, the pendulum can have swung to the opposite severe, with unique pursuits occasionally arguing for exaggerated financial concessions within the identify of more advantageous monetary quarter performance.This booklet examines the probabilities and pitfalls of profitable monetary zone tax reform, no matter if in accordance with simplifications comparable to VAT or transactions taxes, or on sophisticated makes an attempt to take advantage of taxes as corrective tools. Highlighted is the necessity to make the monetary tax procedure as arbitrage-proof and inflation-proof as possible.Contributors to this quantity — all revered lecturers or practitioners — handle precise components of taxation. Theoretical chapters version the impression of taxes on intermediaries, the layout of optimum tax schemes, the position of imperfect details, and hyperlinks among taxation and saving. present perform within the business international and case reviews of distorted nationwide structures supply an empirical underpinning. And dialogue of sensible matters considers inflation, the source of revenue tax remedy of middleman loan-loss reserves, deposit assurance, the VAT, and monetary transactions taxes.This publication will turn out helpful to finance and coverage execs, improvement experts, students and scholars of monetary zone coverage.
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Additional info for Taxation of Financial Intermediation. Theory and Practice for Emerging Economies
Cn ),L), then differentiated commodity taxes should not be used. 10 The nonlinear income tax is deployed to achieve the optimal amount of redistribution. At the optimum, incentive constraints will be binding on all but the lowest-wage households; otherwise more redistribution could be accomplished. Differential commodity taxation will thus be useful THEORETICAL PERSPECTIVES 41 only to the extent that it weakens the incentive constraints. Under weak separability, the preference ordering over goods is independent of labor supply.
Fourth, the optimal tax problem has a particularly simple solution if preferences are additively separable over time, so that U(C1, C2,L1,L2) = U(C1,L1) + βU(C2,L2), (with β > 0 being a discount factor)—a form of separability quite distinct from the implicit separability of the second observation above. Moreover, the discount factor happens to equal the pre-tax interest rate, so that β = 1/(1 + R). In this case it is optimal—whatever the choice of instrument set—not to tax capital income. 4 A converse observation is also useful: if preference is of this intertemporally separable form and the optimum is a steady state in consumption and labor, then that optimal tax system has capital income untaxed and other tax rates timeinvariant.
They have generated an enormous literature that will not be summarized here. AVOIDING THE PITFALLS IN TAXING FINANCIAL INTERMEDIATION 25 13. The revenues are not always explicitly accounted for, as when unremunerated reserve requirements augment the central banks net revenue but are nowhere accounted for explicitly as a revenue source. 14. S. banking crises of the 1980s were more than enough to empty the insurance funds. 15. Protection of the small depositor is another goal. This is quite a distinct role, of course, as runs only by small depositors do not threaten systemic liquidity.
Taxation of Financial Intermediation. Theory and Practice for Emerging Economies by Honohan P.