泛美开发银行（IADB）：市场非竞争条件下的税收：厄瓜多尔贷款税的例证

WORKINGPAPERN°IDB-WP-1580

TaxationWhenMarketsAreNotCompetitive:

EvidencefromaLoanTax

FelipeBrugués

RebeccaDeSimone

Inter-AmericanDevelopmentBank

DepartmentofResearchandChiefEconomist

February2024

Taxation

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WhM

Evid

frona_oaraX

FelipeBrugués*

RebeccaDeSimone**

*InstitutoTecnológicoAutónomodeMéxico

**LondonBusinessSchool

Inter-AmericanDevelopmentBank

DepartmentofResearchandChiefEconomist

February2024

Cataloging-in-Publicationdataprovidedbythe

Inter-AmericanDevelopmentBank

FelipeHerreraLibrary

Brugués,Felipe.

Taxationwhenmarketsarenotcompetitive:evidencefromaloantax/FelipeBrugués,RebeccaDeSimone.

p.cm.一(WorkingPaperSeries;1580)

Includesbibliographicalreferences.

1.Bankloans-Taxation-Ecuador.2.Competition-Ecuador.3.Governmentaidtohospitals-Ecuador.4.

Hospitals-Finance.I.DeSimone,Rebecca.Il.Inter-AmericanDevelopmentBank.Departmentof

ResearchandChiefEconomist.IIl.Title.IV.Series.

IDB-WP-1580

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TheopinionsexpressedinthisworkarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheInter-AmericanDevelopmentBank,itsBoardofDirectors,orthecountriestheyrepresent.

Abstract

Westudytheinteractionofmarketstructureandtax-and-subsidystrategiesutilizingpass-throughestimatesfromtheunexpectedintroductionofaloantaxinEcuador,aquantitativemodel,andacomprehensivecommercial-loandataset.Ourmodelgeneralizesbankcompeti-tiontheories,includingBertrand-Nashcompetition,creditrationing,andjoint-maximization.Whilewefindtheloantaxisdistortionary,neglectingthepossibilityofnon-competitivelendinginflatesestimatedtaxdeadweightlossby80%becausenon-competitivebanksinternalizesomeoftheburden.Conversely,subsidiesarelesseffectiveinnon-competitivesettings.Ifcompeti-tionwerestronger,taxrevenuewouldbe10%lower.Thefindingssuggestthatpolicymakersshouldconsidermarketstructureintax-and-subsidystrategies.

JELclassifications:G21,G28,H2,L1

Keywords:Banks;Governmentregulationofbanks;Taxationandsubsidies;Marketstructure,firmstrategy,andmarketperformance

Acknowledgements:TheauthorsaregratefultoJohnGallemore(discussant),ThomasGresik(discussant),DiegoJiménezHernández(discussant),PaulaBustos,JoaoCocco,CldudiaCustó-dio,FranciscoGomez,GautamGowrisankaran,NicolaPavanini,TarunRamadorai,ClaudiaRobles-Garcia,BernardSalanié,AntoinetteSchoar,PietroTebaldi,ConstantineYannelisandseminarandconferenceaudiencemembersforhelpfulcomments.Wearegratefulforfinan-cialsupportfromSmallResearchGrant491fromtheStructuralTransformationandEconomicGrowthResearchProgramme;grantRG-K1198fromtheInter-AmericanDevelopmentBankresearchstreamon“CompetitioninLatinAmericaandtheCaribbean;”andtheLBSResearchandMaterialsDevelopmentFund.TheopinionsexpressedinthispublicationarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheInter-AmericanDevelopmentBank,its

BoardofDirectors,orthecountriestheyrepresent.Copyright@2023.Inter-AmericanDevel-

opmentBank.Usedbypermission.

1

Policymakersoftentargettaxesandsubsidiesonthebankingsectorbecauseofitsessentialroleinaggregatingwealthandallocatingitacrosstherealeconomy.!Thesepoliciesarefrequentlydebatedinthepopularforumandamongseveralacademicliteratures,yettheconsiderationthattaxandsubsidyeffectivenesscoulddependonthecompetitivestructureofthebankingsector(WeylandFabinger(2013);PlessandvanBenthem(2019))isfrequentlyignored.?Yetbankingisnotwelldescribedbythecompetitivebenchmarkoftheclassicalparadigminpublicfinance(Slemrod(1990);Auerbach(2002)).3Inthispaper,wefillthisgapbyempiricallyinvestigatinghowbankcompetitiveconductmediatesthewelfareeffectsoffinancialtaxpolicy.

Wefocusonthesettingofanunanticipatedintroductionin2014ofaloantaxinEcuadortofundapubliccancerhospital(SociedaddeLuchaContraelCáncer,orSOLCA).EcuadordesignedtheSOLCAtaxasaone-timechargeof0.5%ofthevalueofcreditatthepointofloanapproval.4Crucially,thetaxwasunanticipatedandswiftlyenacted-itwasproposedinSeptemberandwasineffectbyOctober2014.Thus,theSOLCAtaxintroductionservesasi)arepresentativeexampleofacapitaltaxemployedworldwide,,andii)aquasi-exogenousshocktothemarginalcostoflending,uncorrelatedwithanyconcurrentchangesincreditdemand.

Weleveragecomprehensiveadministrativedatafrom2010to2017thatallowustomeasureloan-levelcontracttermsfornewcommercialcreditanddetailedfirm-levelinformationforcom-mercialborrowers,whichusebankcreditasaprimarysourceoffinancing.Werelyontheunex-pectedintroductionofthetaxtoobtainpass-throughestimatesusinganeventstudy.Onaverage,borrowersshoulderaround50%oftheloantaxandbanksabsorbtheremainderbyreducingloaninterestrates.Wedonotobserveanyanticipatorymovementininterestrates,whiletheincompletetaxpass-throughispersistentthrougheightquartersafterthetaxwasimplemented.Moreover,wecomparewithinactivefirm-bankpairssothatitisunlikelythattheeffectsaredrivenbychangesinthecompositionofborrowerrisk.

ISee,forexample,ColliardandHoffmann(2017);Caietal.(2021);andDávilaandParlatore(2021).

2Thereisrecentreduced-formevidencethattaxpass-throughsvarybymarketconcentrationinlendingmarkets(ScharfsteinandSunderam(2016);Drechsleretal.(2017);BenettonandFantino(2021)).Yetthestandardassumptioninthestructurallendingliteratureremainsthatlendersdonotconsidertheircompetitors'profitswhenpricingloans(Eganetal.(2017);Crawfordetal.(2018);Robles-Garcia(2021);Benettonetal.(2021);CuestaandSepúlveda(2021);Coxetal.(2023);YannelisandZhang(2023)).

3EmpiricalevidenceofcompetitioninbankinganditseffectsincludesCilibertoandWilliams(2014);Cornaggiaetal.(2015);HatfieldandWallen(2023);BruguésandDeSimone(2023);andJiangetal.(2023).

4Thetaxwas0.5%forcreditwithmaturitygreaterthanoneyearand0.5%*(maturityinmonths/12)forcreditwithmaturitybelowoneyearduringoursampleperiod.SeeSection1fordetails.

5TheCentreforEconomicPolicyResearchestimatesthatmorethan40countriesusedafinancialtransactiontaxin2020(

/report/financial-transactions-taxes-around-the-world/

,accessedAugust8,2023).Suchtaxesarefrequentlyproposed,includingintheInclusiveProsperityActproposedbySenatorBemieSandersin2019andCOM/2013/71proposedbytheEuropeanCommissionin2013,whichisstillonthetableasof2023.

6DatafromtheWorldBankEnterpriseSurvey2017reveals60%ofEcuadorianfirmshavebankcredit,comparabletotheLatinAmericanaverage(53%offirms).OtherprominentsourcesoffinancinginEcuadorincludeintermalfinancing(covering54%ofinvestments)andsuppliertradecredit(usedby64%offirms).

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Theliteraturehasarguedthatpersistentincompletepass-throughisprimafacaeevidenceofimperfectcompetition(e.g.,ScharfsteinandSunderam,2016;Drechsleretal.,2017;BenettonandFantino,2021;Eisenschmidtetal,2023).Theintuitionisthat,iflenderspricedpurelybasedonlending'smarginalcost,theycouldnotprofitablydecreaseinterestratesinthelong-terminre-sponsetothenewtax.However,reduced-formevidencealoneisnotsufficienttofullycharacterizewelfare,sincethesameobservedpass-throughisconsistentwithdifferentmarketstructuresiftheanalysisdoesnotholdotherdemandandsupplyparametersconstant(WeylandFabinger,2013).Ourapproachrelaxestheneedtomakeanaprioriassumptiononthecompetitiveconductinthemarketandinsteadallowsustoestimateconductfromthedata.Specifically,weintroduceafreeconductparameterintoaflexiblediscrete-continuousstructuralmodelofcommerciallendingthatcapturestheequilibriumcompetitivebehaviorofbanksinthesamemarket.Crucially,ourmodelallowsthecommoncompetitivestructuresintheliteratureasspecialcases,including,Bertrand-Nashcompetition(theliterature'sbenchmark),creditrationing(Cournot),andjointmaximization,anditcanbeestimatedusingtraditionalmethodologies(Train,1986).

Whileflexible,ourapproachintroducesanadditionaldifficulty.Namely,thecompetitivecon-ductparameterandsupply-sideparameterscannotbeseparatelyidentifiedusingpriceandquantitydataalone(Bresnahan,1982).Itisforthisreasonthattheliteraturecommonlyassumesacom-petitiveconductofzero,correspondingtoBertrand-Nashcompetition.Ourkeyinnovationistheinsightthatthepass-throughestimatesthemselvesserveasquasi-experimentalvariationinlendingmarkupsthataresufficienttoidentifythegeneralcompetitionparameter.Ourmodeltransparentlymapstheestimatedpass-throughrateanddemandparametersintoinferenceabouttheformofcompetition

Wefindthatlendersarenotcompeting.Theestimatedconductparameterisstatisticallyindis-tinguishablefromthatrepresentingaperfectlycollusivemodelinwhichlendersformagreements(perhapstacitly)aboutpricesandactasasingleprofit-maximizingmonopolistinthemarket.WecanruleoutthatbanksareBertrand-NashorCournot(creditrationing)competingwithatleast95%confidence.Wetesttherobustnessoftheresultsbytransparentlyvalidatingtheidentificationconditionsrelatingpass-throughtoconduct.Furthermore,toreduceconcernsthatconductmighthavebeenaffectedfromtheintroductionofthetax,weshowestimatesarerelativelyunaffectedifwerelyonlyonperiodsbeforethetaxisintroduced.

Whymightbankscollude?Theeasyansweristhat,asinothersectors,bankspreferhighermarkups.Butspecifictobanking,policymakersoftenfavormarketconcentrationinlendingtoreducefragilityinthebankingsystem.?Wealsoprovideevidencesupportingcollusioninour

7This"competition-fragility"hypothesisproposesthatcompetitionreducesbankprofitmarginsandchartervalues,encouragingbankstoincreaserisk(Keeley,1990;Hellmannetal.,2000;Becketal.,2013;CorbaeandD'Erasmo,2019;Jiangetal.,2023),thoughthishypothesisiscontested(PetersenandRajan,1995;Bergeretal.,1998;BoydandDeNicolo,2005;Martinez-MieraandRepullo,2010;Akinsetal.,2016),

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setting.Marketswithlowercompetitionasmeasuredbystandardcompetitionproxiesalsohavelesscompletepass-throughandlesscompetitiveconductparameters.Moreover,banksthataremembersofabankingassociationthatanecdotallyhelpslenderscoordinateindeedhavelesscompetitivepass-throughandconduct.

Wethenuseourmodeltoquantifyhowimportantcompetitionincommerciallendingistothewelfareeffectsofthebanktax.Wefindthatnotaccountingforlendercollusionwouldvastlyoverstatethewelfarecostsoftaxes(and,conversely,thewelfaregainsfromsubsidies).Ifweas-sumeBertrand-Nashpricecompetitionwhensettinginterestrates,weestimatetheSOLCAtax'sdeadweightlosstobe92centsperdollar.Instead,whilethetaxisstilldistortive,weestimateasig-nificantlysmallerlossof41centsperdollarwhenallowingthemodeltodepartfromdifferentiatedBertrand-Nashpricecompetition,themostcommonconductintheliterature.Thus,thetaxwaslessdistortivethanoriginallybelievedwithoutaccountingforlenderequilibriumcompetition.Wefindthatthisisbecausetheincidenceofthetaxdependscriticallyonthecompetitivestructureofthemarket.Inparticular,borrowersbearamuchhigherburdenofthetaxunderBertrand-Nashcompe-titionandthedeadweightlossisgreaterperunitofrevenueraised.Incontrast,theincidencefallsprimarilyonbanksinthejointmaximizationenvironment,loweringthetax'sdistortionaryeffectonborrowing.Hence,thepolicymaker'sevaluationoftheefficiencyandincidenceimplicationsofintroducingacapitaltaxisgreatlyaffectedbythemarketstructureassumption.8AsinMiraveteetal.(2018),wefindthatrevenue-maximizingtaxratesarehigherunderlesscompetitiveconduct,showingthattheLaffercurveshiftsrightwardunderreducedcompetition.Moreover,weestimate

thattaxrevenuewouldbeapproximately10%loweriflendersBertrand-Nashcompete.

Whileourstudyfocusesonthe2014SOLCAtaxinEcuador,itsimplicationsextendbeyondthisspecificcontextduetotheglobalprevalenceofuncompetitivebankingsectorsandthewidespreaduseofcapitaltaxes.°Moreover,atthemostbasiceconomiclevel,theSOLCAtaxisaquasi-exogenousshocktolendingmarkupsinoursetting.Thus,ourmethodologyreadilyappliestoothermarginalcostshocks(shockstomarkupskeepingdemandconstant),suchasstudyingtheeffectofinterestratepass-throughwhenlendingmarketsarenotcompetitive.10Conversely,wefindthata

8Letussayexplicitlythatpolicymakerswouldconsidermanyfactors,includingtherelativecost-benefitofcollu-sioninlendingmarketsitself.Inrelatedwork(BruguésandDeSimone,2023),weuseourmodeltoquantifyintensiveandextensivemarginimpactsofpricingpowerfromcollusionaboveandbeyonddemand-sidesourcesofmarketpower;provideadecompositionofmarkupsintoaportionfromlenderconduct,borrowerpreferences,andborrowerrisk;andexaminetheimpactofproposedcompetitionreformsinthebankingsector.Thisdoesnotnegatethefactthattheimpactofthetaxitselfdependsonlendercompetitionholdingconductconstant.

9WeprovideevidencethattheEcuadoriancommercialloanmarketisrepresentativeinSection1andinAppendixAppendixH,wherewereportcorrelationsbetweenaverageequilibriuminterestratesandmarketcharacteristicsattheaggregatedbank-province-yearlevel.Wealsocompareourestimatestothoseinthepublicfinanceandbankingliteraturesthroughout

10Asubstantialliteraturedocumentsthepass-throughofmonetarypolicytointerestrates(ScharfsteinandSun-deram,2016;DiMaggioetal.,2017;Drechsleretal.,2017;BenettonandFantino,2021;Wangetal.,2022;Eisen-schmidtetal.,2023;Lietal,2023).Ourresultscanextrapolatetothisquestiontotheextentinterestratechangesact

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loansubsidythatreducedthemarginalcostoflendingwouldbeexpansionary,reducingdeadweightloss.However,thebenefits(incidence)wouldaccruemostlytolenders.

Animportantimplicationofourmodelestimatesisthatinoursettingwefindthat,aslongasonereliesonempiricalpass-throughstocapturecompetitionbehavioramongbanks,estimatesbothforincidenceandexcessburdenareconsistentacrossthevariousconductassumptions.!1Thisisbecauseconsumersurplusandgovernmentmarginalrevenuedependmostlyonpass-throughrates,whileproducersurplusdependsonpass-throughaswellasdemandelasticities.Inoursetting,therelevantcross-elasticitiesaremuchsmallerthanownelasticityandthustheinfluenceofconductonfinalproducersurplusisrelativelysmall.Thisimpliesthat,fromapolicyperspective,itmaybefeasibletoobtainrobustpredictionsaboutthewelfareeffectofproposedfinancialtaxeswithouttheneedtomodelandtestconductbeforehandinmarketswithsimilardemandfeatures.!2Thisinsightenhancesthepracticalusefulnessofourfindingsoutsideofourspecificsetting.

Ourstudyadvancestheliteratureinseveralways.First,weofferoneofthefirstempiricalpiecesofevidenceofhowmarketstructuremediatestheeffectsoftaxes,andthefirstintheeconomicallyimportantcommerciallendingsector.Ourstudybuildsuponanextensiveliteraturefocusingonthewelfareanddistributionaleffectsofthepass-throughoftaxes(andregulatorycostsequivalenttotaxes)inproductmarkets(NakamuraandZerom,2010;FabraandReguant,2014;Ganapatietal.,2020),aswellasthetheoreticalliteraturelinkingsucheffectstocompetitiveenvironments(WeylandFabinger,2013).However,thedistributionaleffectsoftaxesinlendingmarketsandhowthisdependsonthemarketstructureofthebankingindustryarelessstudied.Reduced-formevidencefromhigh-incomecountriessupportsthatpass-throughsvarybymarketconcentration(ScharfsteinandSunderam,2016;Drechsleretal.,2017;BenettonandFantino,2021).Whilesuggestive,thesedonotilluminatethesourceofbankpricingpower.Ourpaperadoptsadistinctpublicfinancelens,investigatinghowbankconcentrationmediatesthewelfareeffectsoffinancialtaxpolicy.

Specifically,weunderscorethesignificanceofcompetition,estimatingitsdirecteffectsonlend-ingmarketsbyleveragingtheSOLCAtaxintroductioninEcuador.Ourmethodology,reminiscentofAtkinandDonaldson(2015)ininternationaltradeandBergquistandDinerstein(2020)inlocalagriculturalmarkets,offersanovelapproachunderrepresentedinthelendingliterature.Thereareafewrelatedpapersoutsidethelendingcontext.Ganapatietal.(2020)studythewelfareeffectsofenergyinputcostsforUSmanufacturersaccountingforimperfectcompetition.Likeus,theyfindthattheincidenceofcostshocksonconsumersislowerundercollusionthanwhenfirmscompete.

throughsimilarcost-shiftermechanismsasatax.TheadvantageofusingtheSOLCAtaxasasettingtoestimatethemagnitudeoftheimpactratherthaninterestratechangesisthatthetaxisacleanershock.Forexample,itismorecrediblethatthetaxdidnotimpactwelfarebothdirectlyandthroughlargefeedbackeffects,suchaschangingtheinvestmentopportunityset.Thisislesscredibleintheinterestratesetting.

IIExactwelfaremagnitudescannotbepinneddownwithoutamodelthatincorporatesflexibleconduct.

l²Thisisnotobviousas,keepingpass-throughconstant,incidenceandexcessburdengenerallychangewithconduct(WeylandFabinger,2013).

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Miraveteetal.(2018)studythetradeoffbetweentaxratesandrevenuewhenmarketsarenotcom-petitiveusingthesettingofretailsalesofalcoholinPennsylvania.Asinourstudy,theyfindthatthegovernment'srevenuegainissignificantlylowerthanexpectedunderstandarddifferentiatedpricecompetition.Moreover,weprovidesimilarevidencethattheLaffercurvefortheoptimalrevenue-maximizingtaxratemovestotherightinlesscompetitiveconduct.OurstudyalsodemonstrateshowmarketcompetitionaffectstheincidenceandeffectivenessoftheSOLCAtaxasacasestudyapplicablemoregenerallytoawiderangeofcapitaltaxesandfees.

Morebroadly,whileourwelfareanalysisfollowsthepublicpolicyliteratureinfocusingonthemarginalexcessburdenoftheSOLCAtax(Auerbach,1985,2002),ourfindingthatthewelfareeffectsoftaxesandsubsidiesvarywiththecompetitivenessoftheindustryappliesmorewidely.Theliteraturepresentsvariousframeworkstoestimatetheshadowpriceofraisingrevenuefromdifferentgroupstohelppolicymakerschooseamongamenuoffeasibletrade-offs.13Ourresultssuggestthatregardlessofthewelfareframeworkemployed,policymakersshouldincorporatemar-ketstructuretocorrectlydefinethetrade-off.

Second,wecontributeamethodologicalinnovationbyusingthepass-throughoftheSOLCAtaxtoestimateafreebankconductparameterandquantifythedegreetowhichbankscolludeandwhatmarketfeaturesfacilitatecollusion.Thisstrategyallowsustoempiricallytestthecompetitionmodeloflendingdirectly.Asubstantialportionofthecreditliterature—Crawfordetal.(2018)and(Coxetal.,2023)incommerciallendingbutalsoindeposits(Eganetal.,2017),mortgages(Robles-Garcia(2021);(Benetton,2021),autolending(YannelisandZhang(2023)),andconsumerlending(CuestaandSepúlveda,2021)—focusesonBertrand-Nashmodelsandtheroleoflendingmarketfrictionsinexplainingobservedprices.4Weprovideafreshperspectivebygeneralizingbankconductsothatwecanestimatehowmarkupsreflectpricingpowerfromthedemand-sidefactorsemphasizedinthesepapersandhowmuchtheyreflectlendersoftenedcompetition.

Thisalsorelatestoamuchwiderindustrialorganizationliteraturethatmodelsandestimatesfirmconduct,followingthepioneeringworkofBresnahan(1982).Notablerecentexamples(Nevo,2001;MillerandWeinberg,2017;Backusetal,2021;Calder-WangandKim,2023)followhisleadinusingexclusionrestrictionsfromplausiblyexogenousshifters,orviadirectmeasures,ofmarkupstotestalternativeconductmodels.

Thisliteraturefocusesonproductcharacteristicsordemanddemographicsinstrumentsthatshift

I³E.g,usingtherelatedwelfareconceptsoftheMarginalValueofPublicFunds(Mayshar,1990;HendrenandSprung-Keyser,2020))andtheMarginalCostofFunds(StiglitzandDasgupta,1971;AtkinsonandStern,1974;KlevenandKreiner,2006).

4HatfieldandWallen(2023)considertheimpactofbankcollusioninthedepositmarketthroughmulti-marketcon-tactbutdonottakeamodelingapproachthatallowsquantificationofotherwiseunobservablebankconduct.CilibertoandWilliams(2014)alsoconsiderstheeffectofcollusionthroughmulti-marketcontactintheairlineindustrybutdonotallowforafullyflexibleconductparameter.Ourapproachallowsustoflexiblyconsidermultipletraditionalmodelsofbankcompetitionandestimatetheconductparameterwithouttakinganexantestandonthemodeofconductinthedata

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demandwithoutaffectingmarginalcosts(BerryandHaile(2014);Duarteetal.(2021);Backusetal.(2021)).15However,inmarketswithadverseselectionandotherpair-specificfrictionssuchinstrumentsalsocorrelatewithmarginalcosts,violatingtheexclusionrestriction.16Instead,weuseataxasanexogenousshifterandproposethetargetingofpass-throughsasamomenttoestimatelenderconduct.!7Ourmethodologythusextendstheclassicindustry-widepapersfromSumner(1981)andSullivan(1985)andisinthespiritofAtkinandDonaldson(2015),whouseobservablepass-throughtodeterminethedivisionofsurplusbetweenconsumersandintermediariesstemmingfrominternationaltrade,andofBergquistandDinerstein(2020),whouseexperimentallyestimatedpass-throughsinagriculturalmarketstotestforcollusionofintermediaries.Toourknowledge,thisapproachisnovelinthelendingliteratureandoffersarobustsolutionformarketswithadverseselectioninwhichdemand-shifterscorrelatewithmarginalcosts.

Lastly,ourpaperrelatestoafast-growingfinancialliteratureonpass-throughofmonetarypol-icy(ScharfsteinandSunderam,2016;DiMaggioetal.,2017;Drechsleretal.,2017;BenettonandFantino,2021;Wangetal.,2022;Eisenschmidtetal.,2023;Lietal.,2023).Ourpaperimpliesthatbankcompetitiveconductisakeydriveroftheincidenceandwelfareoffinancialinstruments.InthespecificcaseofEcuador,ourpaperimpliesexpansionarymonetarypolicythatservesasasubsidytolendingwouldhaveamoredilutedeffectthanotherwisethought,andbankswouldappropriateasignificantchunkofthosesubsidies.

Therestofthepaperisorganizedasfollows.Section1describestheSOLCAtax,theEcuado-riancreditmarket,andourdatasources.Section2presentsourbaselinemodelofcommerciallending,withSection2.1describinghowweidentifytheconductparameterusingpass-throughfromtheSOLCAtax.Section3presentstheempiricalpass-throughestimates.Section4describeshowweestimatethedemandmodelandpresentestimatesandmodelfit.Section5presentsthees-timationstrategyandestimatesforthesupplymodel.Section6offersmodelvalidationexercises,andcounterfactualsimulations,whileSection7presentswelfareanalysisoftheSOLCAtaxandhowitdependsonlendercompetitiveconduct.Section8concludes.

1DescriptionofSOLCATaxandDataset

1.1LoanTax

Likemanydevelopingcountries,particularlyinLatinAmerica,Ecuadoremploysbankleviesasa

revenuesource(KirilenkoandSummers,2003).Startingin1964,Ecuadorutilizedabanklevyto

ISE.gthelocalshareofchildrenaffectscerealdemandbutisunlikelytoaffectthemarginalcostsofproduction.16E.g,firmgrowthrates,assets,andtheageoftheCEOcorrelatewithborrower-specificmarginalcostchanges.

I⁷Rojas(2008)alsousepass-throughfromalargeincreaseinexcisetaxonbeertocomparepricestothoseimpliedbyvariouspricingmodels,thoughhedoesnotestimateconductdirectly.

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raisefundstofundcancertreatment(SociedaddeLuchacontraelCancerorSOLCAtax).Thistaxappliedtoallfinancialoperationsatratesbetween0.25to1percentofthevalueofthetransactionorloan.In2008,theEcuadoriangovemmenteliminatedalltaxesonfinancialtransactions,includingtheSOLCAtax,optinginsteadtofundcancertreatmentandresearchthroughtheregularbudget.

Then,inSeptember2014,theEcuadorianNationalAssemblyratifiedanewlawcalledthe“CodigoOrgánicoMonetarioyFinanciero”thatstandardizedbanking,finance,andinsurancereg-ulations.Alast-minuteamendmentreintroducedtheSOLCAtaxtoaddressfundinggapsforcan-certreatment.18ThisreintroductionwasunexpectedbybothborrowersandfinancialinstitutionsinEcuador.19Thegovernmentimplement