Taxation and the Financial Crisis This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com This page intentionally left blank This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com Taxation and the Financial Crisis Edited by Julian S Alworth and Giampaolo Arachi This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com Great Clarendon Street, Oxford OX2 6DP Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York # Oxford University Press 2012 Chapter # European Union 2012 Chapter # European Union 2012 Chapter # Bank for International Settlements 2009 The moral rights of the authors have been asserted Database right Oxford University Press (maker) First published 2012 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Library of Congress Control Number: 2012930325 Typeset by SPI Publisher Services, Pondicherry, India Printed in Great Britain on acid-free paper by MPG Books Group, Bodmin and King’s Lynn ISBN 978–0–19–969816–5 10 This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com Acknowledgements This book originated in a conference held in Milan in April 2009 at Università Bocconi We wish to thank Econpubblica-Università Bocconi and the Vice Rector for Research, Vincenzo Perrone, for financial support We received generous backing from Roberto Artoni, the EconpubblicaUniverisità Bocconi director, Alessandra Casarico, and Econpubblica research fellows We would also like to thank Cecilia Caliandro and Federica Garlaschelli for editorial assistance in the preparation of the manuscript and index This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com This page intentionally left blank This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com Contents List of Figures ix List of Tables xi List of Boxes xii List of Contributors Abbreviations Introduction Julian S Alworth and Giampaolo Arachi Culprit, Accomplice, or Bystander? Tax Policy and the Shaping of the Crisis Michael Keen, Alexander Klemm, and Victoria Perry The Role of Housing Tax Provisions Thomas Hemmelgarn, Gaetan Nicodeme, and Ernesto Zangari The Role of Taxes in Compensation Schemes and Structured Finance Vieri Ceriani, Stefano Manestra, Giacomo Ricotti, and Alessandra Sanelli xiii xviii 28 61 88 Can Tax Policy Help to Prevent Financial Crisis? Thomas Hemmelgarn and Gaetan Nicodeme 116 Taxation and the Financial Sector Douglas A Shackelford, Daniel N Shaviro, and Joel Slemrod 148 Income Tax Reform Implications of the Financial Crisis Daniel N Shaviro 174 Moving beyond the Crisis: Tax Policies for the Soundness of Financial Markets Geoff Lloyd Government Debt Management at Low Interest Rates Robert N McCauley and Kazuo Ueda 190 214 vii This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com Contents 10 The Effects of Fiscal Consolidation on Short-Term Growth: A Review and Implications for the UK Katarzyna Anna Bilicka, Michael P Devereux, and Clemens Fuest 231 11 Regulation and Taxation: Economics and Politics Donato Masciandaro and Francesco Passarelli 257 References 270 Author Index 291 Subject Index 295 viii This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com List of Figures 2.1 Effective average tax rates on owner-occupation (%) 46 2.2 Debt ratios and the tax treatment of owner-occupation 48 3.1 Nasdaq Composite Index, 1993–2004 63 3.2 US Federal Reserve discount rate, 2000–9 64 3.3 US Capital and Financial Account 65 3.4 US Capital and Financial Account, components 65 3.5 Case–Shiller house price index 66 3.6 US prime and subprime mortgages 69 3.7 Adjustable rate mortgages 69 3.8 US interbank loans 72 3.9 Price-to-rent ratios 73 3.10 Effective average taxation of owner-occupation, Europe and the USA (%) 78 4.1 The securitization process 104 4.2 Collateralized debt obligations 105 4.3 Synthetic CDOs 105 4.4 Cash flows of a synthetic CDO 106 5.1 Share in tax revenue of EU Member States (addition-method FAT) 129 5.2 Share in tax revenue of selected EU Member States (broad-base FTT) 139 8A Example of double-deduction management 198 8.1 Representative private equity fund structure 203 9A Stylized monetary and debt management policy 216 9.1 BoE and Fed buyback announcements: ten-year government bond yields (%) 218 9.2 Gross government debt and central bank assets (domestic currencies, as a percentage of GDP in 2008) 219 9.3 Three-month treasury bill and ten-year bond yields (%) 221 9.4 Holdings/issuance of government bonds and notes 222 9.5 Bank credit and money growth (%) 222 9.6 JGB issuance and BoJ purchases and holdings of JGBs 224 ix This is an open access version of the publication distributed under the terms of the Creative Commons Attribution-NonCommercialNoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/3.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited For commercial re-use, please contact academic.permissions@oup.com ... academic.permissions@oup.com Taxation and the Financial Crisis Edited by Julian S Alworth and Giampaolo Arachi This is an open access version of the publication distributed under the terms of the Creative Commons... Introduction Julian S Alworth and Giampaolo Arachi Culprit, Accomplice, or Bystander? Tax Policy and the Shaping of the Crisis Michael Keen, Alexander Klemm, and Victoria Perry The Role of Housing... a consultant to the US Department of the Treasury, the Canadian Department of Finance, the New Zealand Department of Treasury, the World Bank, and the OECD, and Coordinator of the National Bureau