Incidence of Bank Corporate Income Taxes Revisited

Abstract

In this paper, we revisit the question of the banks’ ability to shift corporate income taxes to customers by increasing their net interest margins. We estimate tax incidence for 1,411 European commercial banks over the period 1992-2008. Unlike earlier studies which suffer from endogeneity problems or misspecification of the tax burden, we do not find any significant relationship between implicit taxes and interest margins. Our result is in line with the theory because income tax does not affect the profit maximization function and, consequently, should not be passed on.

Keywords: Bank taxation, European banks, Corporate income tax, Tax incidence

JEL Classification: G21, H25