Traditionally, the core functions of banking were to (1) accept money from, and collect checks for, customers; (2) honor checks for orders drawn on them by customers; (3) keep current accounts, or something of that kind, in which customers’ debits and credits are entered; and, of course, (4) lend. Banks derived their income largely from the margin between the interest rates they paid on money deposited with them and the interest rates they charged on money lent by them.
Insurers are important financial intermediaries. They play a significant role in the financial system as vehicles for savings (policy premiums are not used immediately to meet claims; they are instead invested, earning policyholders a return when they either collect on claims or have their premiums reduced) and risk pooling (insurers pool the risks of different policyholders, so that those whose insured risk eventuates are compensated in part out of premiums paid by those who do not file claims). The insurance office itself provides an intermediary service. It underwrites some of the residual risk of the risk pooling and may assume some of the savings risk. An example of the latter is a traditional, nonparticipating annuity where the insurer guarantees the annuity payment irrespective of the investment performance of the fund from which the annuity is financed.
This paper discusses issues that arise in designing an appropriate tax regime for three broad types of financial institutions that typically play major roles in securities markets—securities firms, investment funds, and pension funds. The focus is on taxes levied on the income or profits of these institutions, rather than indirect taxes on the financial products that they sell.
The term “innovative financial instruments” is generally taken to mean financial derivatives. A financial derivative (henceforth, simply derivative) is a financial instrument whose price depends on, or is derived from, the price of another asset. The asset underlying a derivative could be a commodity (for example, wheat), a financial asset (for example, a stock), or another derivative. There are two basic building blocks that can be used to construct derivatives: futures contracts traded in exchanges (or forward contracts traded in the over-the-counter market) and options contacts. Derivatives can be used for either hedging or speculative purposes (or both). Some elementary concepts related to derivatives are reviewed in the appendix to this paper.1
The value-added tax (VAT) has been adopted in over 100 countries. While the VAT base has been expanded in many countries to cover a wider range of goods and services, most countries with a VAT have not brought most financial services within the VAT net, especially financial intermediation services and other financial services rendered without explicit fees.
Securities transactions taxes (STTs) are taxes imposed on the transfer of a financial instrument from one owner to another. These taxes are found in more than half of all countries in the Organization for Economic Cooperation and Development (OECD) and in many less developed countries as well. In the last two decades or so, however, there has been a clear trend away from the use of STTs: several OECD countries have abolished them or reduced their rates (as shown in Table 6.1).
The report gives details of the economic analysis for the implementation of Chile's inflation targeting framework. It reviews the current state of liquidity in the Chilean fixed-income markets and developments and impediments to the supply of corporate bonds to the market. The paper considers a number of microstructure issues, transparency in the Over-the-Counter (OTC) market, addresses the role of public debt in facilitating development of the financial markets, and discusses a potential debt management framework that would support the development of a liquid public debt market.
Mr. Benedict J. Clements, Mr. Juan Toro R., and Ms. Victoria J Perry
This paper identifies policy tools that could be used for fiscal consolidation in advanced and emerging economies in the years ahead. The consolidation strategy, particularly in advanced countries, should aim to stabilize age-related spending in relation to GDP, reduce non-age-related expenditure ratios, and increase revenues. Bold reforms are needed to offset projected increases in age-related spending, particularly health care. On the revenue side, measures could include improving tax compliance, for example through better international cooperation, as well as increasing the yield from VAT by eliminating exemptions and reduced rates, further developing property taxes, and increasing excise rates within the range of rates already applicable in comparable countries.
Examina las opciones de política a la hora de diseñar un sistema de pensiones, y en especial analiza si es aconsejable reemplazar un régimen estatal basado en el sistema de reparto por planes privados o públicos basados en la capitalización. Examina las razones de la controversia en torno al diseño de los sistemas de pensiones y analiza si el segundo nivel de dichos sistemas debería ser obligatorio, privado, basado en la capitalización y en contribuciones definidas.
Robust GDP growth, declining unemployment, low and stable inflation, and a string of fiscal and current account surpluses -- it's a record to be envied. These outcomes in Canada owe much to sound macroeconomic policies, as well as to a favorable external environment. This book focuses on these policies and the economy's salient features, including its close trade integration with the United States, large commodity sector, and substantial decentralization and regional diversity. It outlines what is unique about the Canadian experience and sheds light on policies and philosophies that can be fruitfully applied in other economies.