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Tax Policy as Industrial Policy for Finance

Comparative Politics
Political Economy
Capitalism
Lukas Haffert
University of Zurich
Lukas Haffert
University of Zurich

Abstract

This paper analyses the contribution of tax reforms to the rise of finance in European economies since the 1980s. Whereas the existing literature has focused on the deregulation and liberalization of financial markets for explaining common trends and remaining cross-country differences in the turn towards finance, this paper argues that tax policies also played an important role. Studying British, German, and Swedish tax policies in the 1980s and 1990s, it seeks to demonstrate that tax reforms had the potential to increase the demand for financial services by firms and households and to increase the supply of such services by banks and other financial firms. This industrial policy for finance was often an explicit element of tax reform efforts that aimed to create a more dynamic economy and can thus be understood as a conscious choice of tax policymakers seeking new sources of economic growth.