FISCAL DETERMINANTS OF BANK LENDING ACTIVITIES IN THE EU COUNTRIES

Banking institutions play a really important role in the process of providing credit to economic agents and are responsible for recovery after the financial crisis in the Europe. The objective of the paper is to identify the link between the European bank lending activities and main macroeconomic shocks, banking controls, and fiscal variables in the sample of EU-27 countries within the period 1998-2013. The microeconomic data are provided by the Bankscope database, macroeconomic shocks and fiscal data are drawn from Eurostat on-line database. We employ robust OLS estimator to identify the main determinants of bank lending activities. The results confirm significant impact of macroeconomic shocks, banking controls and fiscal variables on European lending activity. Not surprisingly, the impact of monetary policy interest rates is debatable. Instead, central bank financial assets played an important role in the process of bank lending activities. In case of fiscal policy, indirect taxes had a negative impact on lending activities and direct taxes proved to be non-significant; i.e. governments should assist the central bank to support lending activities by lowering the indirect taxes.