Authors: Panayotis Alexakis, Ioannis Samantas

Title: Regulation and taxation issues of financial stability in European banking

Abstract

This study contributes to the pertinent literature by investigating the impact of taxation as expressed by Corporate Income Tax (CIT) and regulation on the profitability of financial institutions. The sample comprises banks of different productive specialization during the period 2003-2010 headquartering in Greece, Ireland, Italy, Portugal and Spain.  The results show a persistent effect of taxation on bank profitability through non-interest income, operational cost and nonperforming loans. Significant contribution of capital regulation and activities restrictions produce policy implications on the optimality of tax rate taking account of the potential tax shifting in the short and long run.