Rethinking the Taxation of the Financial Sector

Abstract

The economic crisis that erupted in 2008 has prompted many countries to rethink, and several already to reform, the taxation of financial institutions. The underlying analytical issues, however, have received almost no attention in the public finance literature. This article explores the possible purposes and broad design of distinctive tax measures for financial institutions, focusing especially on the potential role of corrective taxation, and its merits relative to traditional forms of regulation, in addressing the challenges posed by the potential failure of systemically important institutions. (JEL codes: G38, H21 and H23)