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Financial Sector Debt Bias
Author:
Ms. Oana Luca
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Alexander F. Tieman null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 217
Language:
English
Publication Date:
10 Nov 2016
DOI:
https://doi.org/10.5089/9781475552805.001
ISBN:
9781475552805
ISSN:
1018-5941
Pages:
28
Keywords:
WP; oil price; interest rate; Oil prices; equity prices; dividends; economic growth; oil supply; global oil markets; international business cycle.; equity price; standard error band; term interest rate; price relationship; price fall; oil price shock; oil price coefficient; Oil; Oil production; Stocks; Long term interest rates; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Most tax systems create a tax bias toward debt finance. Such debt bias increases leverage and may negatively affect financial stability. This paper models and estimates debt bias in the financial sector, and present novel estimates for investment banks and non-bank financial intermediaries such as finance and insurance companies. We find debt bias to be pervasive, explaining as much as 10 percent of total leverage for regular banks and 20 percent for investment banks, with the effects most pronounced before the global financial crisis. Going forward, debt bias is likely to once again gain prominence as a key driver of leverage decisions, underscoring the importance of policy reform at this juncture.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund