Abstract
How do taxes in the nancial sector aect economic outcomes? We analyze a simple general equilibrium model with nancial intermediation. We formalize a trade-o between tax policies that burden the owners of banks and tax policies that burden households. We also study the implications of the nancial sector’s exemption from value added taxation (VAT). Main results are that an increased taxation of the banks’ prots goes together with a larger nancial sector, as measured by the volume of loans and the employment in banking. We also show that the general presumption that the VAT-exemption is benecial for banks is unjustied.
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