Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/299422 
Year of Publication: 
2024
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1580
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
Abstract: 
We study the interaction of market structure and tax-and-subsidy strategies utilizing pass-through estimates from the unexpected introduction of a loan tax in Ecuador, a quantitative model, and a comprehensive commercial-loan dataset. Our model generalizes bank competition theories, including Bertrand-Nash competition, credit rationing, and joint-maximization. While we find the loan tax is distortionary, neglecting the possibility of non-competitive lending inflates estimated tax deadweight loss by 80% because non-competitive banks internalize some of the burden. Conversely, subsidies are less effective in non-competitive settings. If competition were stronger, tax revenue would be 10% lower. The findings suggest that policymakers should consider market structure in tax-and-subsidy strategies.
Subjects: 
Banks
Government regulation of banks
Taxation and subsidies
Market structure, firm strategy and market performance
JEL: 
G21
G28
H2
L1
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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