La provision forfaitaire permet-elle de réduire la procyclicité de l’activité bancaire au Luxembourg?

The objective of this paper is twofold. On the one hand, the BCL measure the impact of the lump sum provision (provision forfaitaire) on tax revenues. On the other hand, BCL perform an econometric study for assessing the potentially countercyclical character of lump sum provisions, and whether it smoothes banks’ profits and thereby, government tax revenues.
The results of the estimation of BCL indicate that the lump sum provision has a countercyclical effect helping to smooth bank profits. Banks accumulate provisions during the upswings which they use to cover losses during the downswings. Consequently, lump sum provisioning results in smoother tax revenues across the cycle.