VAT experience as an influence on banking crises

GST/VAT influences the economy by several channels. VAT does not fully apply to financial services, or these services are usually exempt on the tax, which leads to inefficiencies and could encourage banking crises. This paper employs a dataset of 36 EU and OECD countries for the period 1970–2011 and estimates panel probability models to empirically test the importance of VAT experience in banking crises. An increase of the risk of banking crises is correlated with VAT experience, as empirically checked. Therefore, GST/VAT reforms could pass by fully taxing the value added of financial services. This paper is useful for academicians, policy makers and practitioners.