Leisure as a complement of banking: Taxing financial services for reducing leisure time?

Peña, Guillermo (2021): Leisure as a complement of banking: Taxing financial services for reducing leisure time?

Abstract

Optimality of consumption taxes as VAT can be conditioned by the reduction of working time respect to leisure. Nonetheless, may we tax a good or service complementary to leisure? In this case, by applying the tax, the good itself would be discouraged, but also leisure at the same time. This paper theoretically discusses and analyzes the potential complementarity or neutrality of financial services regarding leisure time. A reduced general equilibrium model is developed, suggesting their complementarity. This is confirmed in the empirical section, where data from 30 OECD countries for 2018 is employed, obtaining that some financial indicators are usually complements of leisure, specifically for women, who are also sensitive in their leisure time to other fiscal and commercial variables. This show that the elimination of the exemption of financial services under VAT may discourage leisure hours, offsetting the discouragement of working hours by the general VAT.

• Item Type: MPRA Paper
• Language: English
• Keywords: Leisure time, financial services, complementarity, financial VAT, optimal taxation
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply

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