Must Financial Services be Taxed Under a Consumption Tax?

Grubert, Harry; Mackie, James B.

doi:10.17310/ntj.2000.1.02

Cited by 30 publications

(22 citation statements)

References 10 publications

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“…However, Grubert & Mackie (2000) argue that financial services are not purchased for their consumption value, but rather to facilitate final consumption and should not be taxed. Boadway & Keen (2003) argue that many goods and services that one would question should be taxed using a GST.…”

Section: Value Added Tax (Vat)mentioning

confidence: 99%

Balancing Bank Regulation and Taxation

2014

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This study gives an overview of bank taxation as an alternative to prudential regulations or nonrevenue taxation. We review existing bank taxation with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. We furthermore analyze taxation of financial instruments, trading and taxation of banking products and services and their ability to finance resolution mechanisms for banks to ensure their stability. In this respect, we put forward the following arguments: (1) that a financial transaction tax is economically inefficient and potentially costly for the economy and may not protect taxpayers; (2) that a bank levy used to finance deposit guarantee and bank resolution mechanisms is potentially useful for financial stability, but that it poses the threat of double taxation, together with the proposed Basel III liquidity ratios; and (3) that we support the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, whilst retaining exemption for basic payments services. This is expected to improve efficiency by reducing the wasteful use of financial services.

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Section: Value Added Tax (Vat)mentioning

confidence: 99%

Balancing Bank Regulation and Taxation

2014

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“…To begin with, Harry Grubert and James Mackie (1999) argue that only final consumption goods should be taxed under a VAT, while intermediate goods are not subject to tax -any such tax distorts production. They then argue that financial services are an intermediate good, and not something that provides utility in and of itself, so should be exempt from tax.…”

Section: Equivalence Of a Labor Income Tax And A Vatmentioning

confidence: 99%

Taxation of Financial Services under a VAT

Auerbach

Gordon

2002

American Economic Review

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In simple economic models, it is relatively easy to describe how to impose a value-added tax at a uniform rate on all consumption goods, and to demonstrate that this tax is equivalent to a proportional labor income tax, plus a tax on existing assets. The equivalence involves little more than the national income identity relating the sources and uses of income. Once one attempts to incorporate the costs of financial intermediation, however, tax analysis becomes more complicated.In attempting to determine how a VAT should treat financial transactions, various authors have attempted to apply results from simpler models. Unfortunately, these results can lead to conflicting, ambiguous, and misleading prescriptions. In this paper, we argue that one needs to rely more on the fundamental objectives of a VAT to decide how it should treat financial transactions. Adopting this approach, we find that, in principle, the VAT should apply to resources devoted to financial transactions in the same manner that it does in other sectors. As discussed below, there are real problems, however, in implementing such a tax on the financial sector that we do not attempt to address in this paper.

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“…From a theoretical point of view, Auerbach and Gordon (2002) have argued that it is desirable to integrate financial services into the VAT base. Others have argued that consumption of financial services should not be treated like any other consumer good (e.g., Grubert andMackie, 1999, Lockwood, 2012). Assuming that consumption of financial services does not show a particularly large degree of substitution with leisure, Buettner and Erbe (2012) provide an analysis of the welfare effects and find small welfare gains of a revenue neutral repeal of the VAT exemption of financial services.…”

Section: Introductionmentioning

confidence: 99%

FAT or VAT? The Financial Activities Tax as a Substitute to Imposing Value-Added Tax on Financial Services

Erbe¹,

Büttner²

2015

Taxation and Regulation of the Financial Sector

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: Terms of use: Documents in EconStor mayThis paper analyzes revenue and welfare effects of implementing a FAT both from a theoretical and a quantitative perspective. The theoretical analysis allows us to derive expressions for the revenue effects and the deadweight loss in a general equilibrium setting, which can be quantified with a minimum of information about the economy and key elasticities. Using data for Germany, the empirical quantification suggests that introducing a modest FAT with a rate of 3% results in a revenue gain of about e 1.312 bn. If this revenue gain is used to reduce distorting labor taxes, the results point at a welfare gain of e 1.092 bn. Comparing these results with Buettner and Erbe (2012), we find that the introduction of a FAT of 3% would generate similar revenue and welfare effects as a repeal of the financial sector VAT exemption (with a 19% VAT rate). However, taxing financial services through FAT may exert adverse location effects on financial service production.

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Must Financial Services be Taxed Under a Consumption Tax?

Cited by 30 publications

References 10 publications

Balancing Bank Regulation and Taxation

Balancing Bank Regulation and Taxation

Taxation of Financial Services under a VAT

FAT or VAT? The Financial Activities Tax as a Substitute to Imposing Value-Added Tax on Financial Services

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