This paper studies how bank capital changes following the implementation and removal of a tax incentive on equity. We examine the impact of the introduction of a tax allowance in Italy granted to banks (and other firms) that increase their equity from a base year. Using a...

In the context of a stylised game theoretical framework of capital tax competition, we show that when repeated policy interactions are associated to a systematic punishment of the deviating policymaker, a co-ordinated outcome can be the solution to the non co-operative tax game. This result...