"Tax policies that favor debt financing may have worsened the financial crisis, and countries should consider treating debt and equity the same, according to a new study from the International Monetary Fund (IMF). Tax regimes in most countries allow corporations to deduct interest payments, but not returns on equity. This bias towards debt is partly mitigated by policies such as lower tax rates on capital gains and dividend income...." [Dow Jones/Factiva]

FT adds that "...such policies contributed to an unsustainable build-up of credit, the collapse of which propelled the world into recession. 'We're not saying tax was the cause of the crisis [but] we do see some tax fingerprints at the scene of the crime," said IMF Assistant Director of Tax Policy Michael Keen...." [Financial Times/Factiva]

Reuters writes that "...the IMF report said while tax incentives supported high housing prices and mortgage interest relief encouraged households to take on higher debt, there is no clear evidence it contributed to the housing price bubble over the past decade. In the short term, creating more tax breaks for housing should be avoided, but there may be scope for cutting transactions taxes, the report said...." [Reuters/Factiva]

AFP adds that "...a country could phase out mortgage interest relief, as Britain has done 'without undue controversy or adverse impact,' the IMF suggested. Other steps included tax rents, a full tax on the first sales of residences and raising ownership taxes...." [Agence France Presse/Factiva]