Financial Sector Debt Bias

November 10, 2016

Preview Citation

Format: Chicago

Oana Luca, and Alexander F. Tieman Financial Sector Debt Bias, (USA: International Monetary Fund, 2016) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Commodities, Financial institutions, Financial services, Long term interest rates, Oil, Oil prices, Oil production, Prices, Production, Stocks

Keywords: Dividends, Economic growth, Equity price, Equity prices, Global, Global oil markets, Interest rate, International business cycle., Long term interest rates, Oil, Oil price, Oil price coefficient, Oil price shock, Oil prices, Oil production, Oil supply, Price fall, Price relationship, Standard error band, Stocks, Term interest rate, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/217
Stock No:

WPIEA2016217
ISBN:

9781475552805
ISSN:

1018-5941

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