Banca d’ Italia, “La tassazione delle rendite finanziarie nella CEE alla luce della liberalizzazione valutaria,” Temi di discussione, 118, February 1989.
Ceriani, Vieri and Giovanni Ferri, “Effetti della Ritenuta d’ Acconto sugli Interessi Interbancari,” Politica Economica, Vol. 7, 2 (August 1991), pp. 257-76.
Dermine, J., “Deposit Rates, Credit Rates and Bank Capital; The Klein-Monti Model Revisited,” Journal of Banking and Finance 10 (1986), pp. 99-114.
Ferri, Giovanni, “Concorrenza tra i Mercati del Credito Bancario in Italia nella Seconda Metà degli Anni Ottanta,” mimeo, Bank of Italy, September 1991.
Istituto Mobiliare Italiano, Normativa Italiana in Campo Creditizio e Finanziario: Recenti Evoluzioni, Segreteria Consulenza Legale, November 1991.
McKinnon, Ronald I. and Donald J. Mathieson, “How to Manage a Repressed Economy,” Princeton Essays in International Finance, 145, December 1981.
Molho, Lazaros E., “European Financial Integration and Revenue from Seignorage: The Case of Italy,” Giornale degli Economisti e Annali di Economia, November-December 1989, pp. 541-68.
Porta, Angelo, “La Fiscalità Implicita nei Controlli sul SIstema Bancario Italiano ei Tassi di Interesse: Alcune Quantificazioni Preliminari,” Giornale degli Economisti e Annali di Economia, Vol. 42, 11-12 (November-December 1983), pp. 725-47.
The author is grateful to Giovanni Ferri, Eugenio Gaiotti, K Habermeier, Erich Spitäller, Roberto Violi, and Harilaos Vittas, comments on earlier drafts of this paper. Responsibility for ar errors and for the views expressed in the paper, of course, re’ with the author.
For a discussion of these directives, their state of implementation, and their implications for Italy, see Banca Commerciale Italiana, The Italian Economy: Monetary Trends, Economic Research and Planning Department, January 1990 and Istituto Mobiliare Italiano, Normativa Ita1iana in Campo Creditizio e Finanziario: Recenti Evoluzioni, November 1991.
The tax-like function of reserve requirements has been appreciated for some time, especially in connection with the effects of inflation. See, for example, Phelps (1973), Fama (1980), McKinnon and Mathieson (1981) and, for the case of Italy, Porta (1983).
See Banca d’ Italia, Abridged Report for the Year 1990, pp. 160-161.
For a more detailed description of the evolution of Italy’s system of reserve requirements, see Banca d’Italia, Relazione Annuale 1983, pp. 183-184.
See Banca d’ Italia, Relazione Annuale 1983, p. 196 and Relazione Annuale 1990, pp. 195-6. Certificates of deposit have also received a more favorable tax treatment than other deposits. Since 1988, the withholding tax rate on interest income has been 12.5 percent for CDs with maturities of at least 18 months, 25 percent for CDs with shorter maturities and 30 percent for all other deposits. Beginning in October 1991, however, as a part of the fiscal adjustment effort, the withholding tax rate on shorter-term CDs was to be raised to 30 percent.
See Banca d’ Italia, “La mobilizzazione della riserva obbligatoria: motivazioni e implicazioni,” October 1988 and Bollettino Economico, 15, 1990.
For a more detailed discussion of the related issue of defining the fiscal gains from seignorage, see Molho (1989).
The model described below is a version of the so-called Klein-Monti model. For a fuller discussion of its properties, see Dermine, J., “Deposit Rates, Credit Rates and Bank Capital: The Klein-Monti Model Revisited,” Journal of Banking and Finance 10 (1986), pp. 99-114 and references therein.
It is also possible that some deposits are replaced by higher - yielding government bonds which, at the margin, would lead to an increase in depositors’ total interest earnings. The burden of the tax would then include the cost of forgoing the liquidity, convenience and other desirable attributes of deposits, net of the extra interest earned. Provided that the government bond rate is equal to the opportunity cost of those attributes, the above definition of BD would carry over to this more general case.
The results on the taxation of bank profits must be interpreted with caution, as they constitute a very preliminary attempt to integrate the treatment of the relevant explicit and implicit taxes. The statutory corporate tax rate that is used in the above computation is in fact significantly lower than the effective tax rate that is implicit in the commercial banking system’s profit-and-loss accounts, raising questions about the accuracy of our computations. Among the factors that may account for this disparity may be the inclusion of payments for indirect taxes in the banks’ profit - and-loss accounts (e.g., transaction taxes, value-added taxes, and capital gains taxes (INVIM)); differences between the definition of bank profits for accounting purposes and for application of IRPEG and ILOR; and lags in the settlement of corporate taxes stemming from the system of estimated tax payments. The settlement lags, moreover, together with the withholding tax on interest on interbank loans, may give rise to an additional form of implicit taxation on those banks that are subject to over-withholding. For a discussion of this latter issue, which is beyond the scope of this paper, see Ceriani and Ferri (1991).
Once again, the results are purely illustrative and must be viewed with caution. A comprehensive comparison would have to take into account international differences not only in statutory tax rates and reserve requirements but also in market structure, accounting practices, and tax enforcement. In the case of personal income taxes, because several countries tax interest income at a progressive schedule of rates, the measured explicit tax rates tend to have a wide dispersion. Bank secrecy laws, moreover, may make it difficult to ascertain the extent to which nominal tax rates are representative of effective rates of taxation. In the case of banks, the already-mentioned difficulties in gauging the effective rate of taxation in Italy argue against the application of our approach to an international comparison of total tax burdens.
See Banca d’ Italia, Bollettino Economico, 15, October 1990, pp. 48-49.
This computation disregards the fact that about two thirds of the Italian banking system is owned by public entities. Assuming that changes in the taxation of publicly owned banks are of no consequence for the fiscal accounts, the net budgetary losses stemming from a halving of the reserve ratio turns out to be equal to 0.11 percent of GDP.