Skip to content
tax distortions are likely to have encouraged excessive leveraging in US crisis

Here is a paper from the IMF that reviews key channels by which tax distortions can significantly affect financial markets, drawing implications for tax design once the crisis has passed. Tax rules vary widely across countries.

The idea is tax distortions are likely to have encouraged excessive leveraging and other financial market problems evident in the crisis. These effects have been little explored, but are potentially macro-relevant. Taxation can result, for example, in a net subsidy to borrowing of hundreds of basis points, raising debt-equity ratios and vulnerabilities from capital inflows.

Link to the PDF

Leave a comment

Your email address will not be published..