The Financial Channel of Tax Amnesty Policies (Discussion Paper)

In the past two decades, more than 30 countries have implemented tax amnesty policies to encourage the declaration and repatriation of hidden assets, with the goal of increasing government tax revenues. While previous literature has focused primarily on the fiscal impact, this paper studies a new channel: the potential expansion of the financial sector resulting from these policies. We examine the macroeconomic effects of Argentinas 2016 Tax Amnesty, one of the largest episodes of asset disclosure, through the financial channel. This amnesty led to an influx of savings into domestic banks, primarily in dollars, equivalent to 1.4% of GDP. We leverage the heterogeneous exposure of banks and firms to this amnesty-induced financial shock to identify bank responses and spillovers to firms. We find that more exposed banks significantly increased their lending compared to less exposed ones. Firms connected to banks with higher exposure experienced increased borrowing, along with a boost in imports of intermediate inputs, exports, and employment. Our findings reveal that tax amnesty policies can stimulate economic growth by expanding the financial sector, demonstrating effects beyond their direct fiscal impact. These results are particularly relevant for countries with underdeveloped financial systems, where the potential for growth through improved access to capital is significant.