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The 2008 crisis had little or nothing to do with a tax bias in favour of debt finance

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Sir, Martin Wolf discussing a system where for tax purposes “no deduction would be allowed for financial costs” writes “there would no longer be today’s bias in favour of debt finance, which creates significant risks to economic stability, as the financial crisis demonstrated.”“The world needs to change the way it taxes companies
One could sure argue there should not be a bias in favour of debt finance, and that it has had an important role in creating excessive corporate debt, but to argue that it caused the financial crisis is clearly wrong.
Does Mr Wolf really think that all those in the subprime sector who bought houses on credit, and whose mortgages got packaged into ex ante AAA rated securities, which ex post turned out not to be AAA securities, and which set off the 2008 crisis, did so because of tax considerations?
And does Mr Wolf think that the reason banks held so little capital against these securities was that the dividends they were to pay were not tax deductible? Was it not that the US investment banks and the European banks were allowed to hold these AAA rated securities against only 1.6% capital?


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