Financial Regulation and Government Revenue : The Effects of a Policy Change in Ethiopia
Financial regulation affects government revenue whenever it imposes both the mandatory quantity and price of government bonds. This paper studies a banking regulation adopted by the National Bank of Ethiopia in April 2011, which forces all private...
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/06/26533231/financial-regulation-government-revenue-effects-policy-change-ethiopia http://hdl.handle.net/10986/24650 |
| Summary: | Financial regulation affects government
revenue whenever it imposes both the mandatory quantity and
price of government bonds. This paper studies a banking
regulation adopted by the National Bank of Ethiopia in April
2011, which forces all private banks to purchase a fixed
negative-yield government bond in proportion to private
sector lending. Having access to monthly bank balance
sheets, a survey of branch costs and public finances
documentation, the effect of the policy on government
revenue can be tracked. This is compared to three plausible
revenue-generating alternatives: raising funds at
competitive rates on international markets; distorting the
private lending of the state-owned bank; and raising new
deposits through additional branches of the state-owned
bank. Three main results emerge: the government revenue gain
is moderate (1.5-2.6 percent of the tax revenue); banks
comply with the policy and amass more safe assets;
banks' profit growth slows without turning negative
(from 10 percent to 2 percent). |
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