Negative Interest Rates and Corporate Tax Behavior in Banks

This study examines the impact of negative interest rate (NIR) regimes on corporate tax behavior. We argue that NIRs actas a de-facto taxlevied by central banks and investigate how this ‘tax’ affects banks’ corporate tax planning. Using a sample of domestic banks in OECD countries and a difference-in-difference research design, we find that banks affected by negative interest rate policies exhibitan increase in tax planning following the adoption of NIR, compared to unaffected banks. We document that the introduction of NIRsis associated with a 2.3 to 2.6 percentage point decrease in GAAP ETRand that the effects of NIRs are more pronounced in banks with a lower distance to default or lower reserves, and in countries with lower levels of tax enforcement or lower levels of trust in the government. Collectively, our results suggest that NIRs lead banks to increase tax planning as a funding source.