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Europe > Switzerland

You are looking at 1 - 2 of 2 items for :

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Cover IMF Working Papers
Corporate Tax Reform: From Income to Cash Flow Taxes
Benjamin Carton
,
Emilio Fernández Corugedo
, and
Mr. Benjamin L Hunt
This paper uses a multi-region, forward-looking, DSGE model to estimate the macroeconomic impact of a tax reform that replaces a corporate income tax (CIT) with a destination-based cash-flow tax (DBCFT). Two key channels are at play. The first channel is the shift from an income tax to a cash-flow tax. This channel induces the corporate sector to invest more, boosting long-run potential output, GDP and consumption, but crowding out consumption in the short run as households save to build up the capital stock. The second channel is the shift from a taxable base that comprises domestic and foreign revenues, to one where only domestic revenues enter. This leads to an appreciation of the currency to offset the competitiveness boost afforded by the tax and maintain domestic investment-saving equilibrium. The paper demonstrates that spillover effects from the tax reform are positive in the long run as other countries’ exports benefit from additional investment in the country undertaking the reform and other countries’ domestic demand benefits from improved terms of trade. The paper also shows that there are substantial benefits when all countries undertake the reform. Finally, the paper demonstrates that in the presence of financial frictions, corporate debt declines under the tax reform as firms are no longer able to deduct interest expenses from their profits. In this case, the tax shifting results in an increase in the corporate risk premia, a near-term decline in output, and a smaller long-run increase in GDP.
Keywords:
WP; capital stock; exchange rate; export price; income tax; tax policy; business taxation; corporate leverage; dynamic stochastic general equilibrium models; macroeconomic interdependence; CIT reform; cash flow; cost of capital; open economy; DBCFT result; distortionary tax; tax reform experiment; return to capital; rate of return; shadow price; Corporate income tax; Corporate taxes; Financial frictions; Value-added tax; Cash-flow tax; Global
Cover IMF Working Papers
Bank Behavior in Response to Basel Iii: A Cross-Country Analysis
Mr. Thomas F. Cosimano
and
Ms. Dalia S Hakura
This paper investigates the impact of the new capital requirements introduced under the Basel III framework on bank lending rates and loan growth. Higher capital requirements, by raising banks’ marginal cost of funding, lead to higher lending rates. The data presented in the paper suggest that large banks would on average need to increase their equity-to-asset ratio by 1.3 percentage points under the Basel III framework. GMM estimations indicate that this would lead large banks to increase their lending rates by 16 basis points, causing loan growth to decline by 1.3 percent in the long run. The results also suggest that banks’ responses to the new regulations will vary considerably from one advanced economy to another (e.g. a relatively large impact on loan growth in Japan and Denmark and a relatively lower impact in the U.S.) depending on cross-country variations in banks’ net cost of raising equity and the elasticity of loan demand with respect to changes in loan rates.
Keywords:
WP; loan rate; loan demand; financial crisis; largest bank; Commercial banks; capital constraints; equity-to-asset ratio; expense ratio; bank capital; bank equity; Loans; Stocks; Demand elasticity; Basel III; Global