Jump to ContentJump to Main Navigation
The Great RecessionLessons for Central Bankers$
Users without a subscription are not able to see the full content.

Jacob Braude, Zvi Eckstein, Stanley Fischer, and Karnit Flug

Print publication date: 2013

Print ISBN-13: 9780262018340

Published to MIT Press Scholarship Online: January 2015

DOI: 10.7551/mitpress/9780262018340.001.0001

Show Summary Details
Page of

PRINTED FROM MIT PRESS SCHOLARSHIP ONLINE (www.mitpress.universitypressscholarship.com). (c) Copyright The MIT Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in MITSO for personal use.date: 09 December 2021

Tax Policies and Financial Stability: Lessons from the Crisis

Tax Policies and Financial Stability: Lessons from the Crisis

(p.123) 5 Tax Policies and Financial Stability: Lessons from the Crisis
The Great Recession

Helene Schuberth

The MIT Press

While taxes were not the major cause of the financial crisis, the biases embedded in the current tax systems may have exacerbated the crisis and might play a greater role in future crises unless tax systems are thoroughly reformed. The chapter first examines the key channels through which tax policies have contributed to vulnerabilities of the financial and nonfinancial sectors, in particular high leverage and high risk-taking. The best-known example is the favourable tax treatment of owner-occupied housing together with mortgage interest relief. Other examples include the preferential treatment of debt over equity, the different treatment of interest, dividends and capital gains, as well as international tax arbitrage opportunities. The second part of the chapter discusses the rationale of various taxes that are supposed to internalize negative externalities stemming from financial sector activities, to align private incentives with the social cost of activities. The chapter critically evaluates the corrective potential of those taxes and discusses the relative merits of, and complementarities between taxation and regulation. In general, if taxes are properly designed, there is a strong case for using them as an instrument of macroprudential policy.

Keywords:   Financial stability, Housing, Tax bias, Capital gains, Tax arbitrage, Macroprudential policy

MIT Press Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.