Who Truly Bears (Bank) Taxes? Evidence from Only Shifting Statutory Incidence

We show strong economic incidence effects, including distortionary effects, of only shifting statutory incidence (i.e., the agent on which taxes are levied), without any tax rate change. We exploit: (i) a policy change in Spain shifting an existing mortgage tax from being levied on borrowers to being levied on banks; (ii) some areas, for historical reasons, were tax exempted (or have different tax rates); and (iii) administrative matched credit register data. After the policy change we find: First, a strong – but not complete – tax pass-through for the average mortgage rate. Second, a large heterogeneity in the pass-through: larger for borrowers with lower income, fewer lending relationships, not working for the lender, or facing less banks, consistent with a bargaining power mechanism. Third, an increase in banks’ risk-taking: more affected banks reduce costly mortgage insurance and expand into non-affected but ex-ante riskier consumer lending, experiencing higher ex-post defaults within consumer loans.

Zoom link:

https://eur-nl.zoom.us/j/97189500959?pwd=cU9HS25FUlFrbjhsamxIWEFnbVFhdz09

Meeting ID:

971 8950 0959