Corporate income taxation, by affecting the after-tax cost of funding, has implications for a bank’s incentive to securitize. Using a sample of OECD banks over the period 1999–2006, we find that corporate income taxation led to more securitization at banks that are constrained in funding markets, while it did not affect securitization at unconstrained banks. This is consistent with prior theories suggesting that the tax effects of securitization depend on the extent to which banks face funding constraints. Our results suggest that current corporate income tax systems have distorting effects on banks’ securitization decisions.
- Corporate income taxes