Jump to ContentJump to Main Navigation
Post-crisis Fiscal Policy$
Users without a subscription are not able to see the full content.

Carlo Cottarelli, Philip Gerson, and Abdelhak Senhadji

Print publication date: 2014

Print ISBN-13: 9780262027182

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262027182.001.0001

Show Summary Details
Page of

PRINTED FROM MIT PRESS SCHOLARSHIP ONLINE (www.mitpress.universitypressscholarship.com). (c) Copyright The MIT Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in MITSO for personal use.date: 03 July 2022

Has Taxation Contributed to the Crisis?

Has Taxation Contributed to the Crisis?

(p.227) 9 Has Taxation Contributed to the Crisis?
Post-crisis Fiscal Policy

John Norregaard

Aqib Aslam

Dora Benedek

Thornton Matheson

The MIT Press

This chapter examines how current taxation systems distort the saving and financing behavior of individuals and firms by providing incentives for higher leverage, risk-taking, and the promotion of complicated financial instruments. It considers the channels through which tax policies may have delayed recovery from the 2007 financial crisis and proposes reform measures that should be adopted to eliminate distortions in tax systems and promote economic stability. In particular, the debt bias in corporate finance represents a key tax distortion in most countries. While the costs of debt financing are usually deductible from the corporate income tax base, returns on equity are not. This asymmetry provides a tempting incentive for excessive leverage. The prevalence of low-tax jurisdictions also fosters excessive leverage by providing incentives for tax avoidance, while executive compensation schemes are frequently designed in a way that promotes excessive risk-taking. Finally, favorable tax treatment of homeownership contributed to a housing bubble and unsustainable mortgage-based borrowing.

Keywords:   taxation, saving, financing, incentives, leverage, risk-taking, financial instruments, tax policies, corporate finance, tax avoidance

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.