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Sustainability Of The Financial Transaction Tax: Decision And Uncertainty

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  • Bogdan Ion Boldea
  • Emilian Lucian Neacsu

    (West University of Timisoara Faculty of Economics and Business Administration)

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    Abstract

    Opinion leaders and other policymakers want profound changes in rights (such as Medicare and Social Security) and a tax on financial transactions - which would simultaneously raise money and would discourage another crisis - should be part of the discussion. We explore whether a Financial Transactions Tax (TTF) is likely to correct the market failures that have contributed to the financial crisis, to what extent FTT succeeds in raising revenues, and how the FTT compares to alternative taxes in terms of efficiency. Taxing of transactions is not well targeted at behaviour that leads to excessive risk and systemic risk creation. The empirical evidence does not suggest that the introduction of an FTT reduces volatility or asset price bubbles. When compared to alternative forms of taxation of the financial sector, the FTT is likely less efficient given the amount of revenues. In particular, taxes that more directly address existing distortions, such as the current VAT exemption for banks, and the bias towards debt financing, provide more efficient alternatives.

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    File URL: http://feaa.ucv.ro/AUCSSE/0040v3-022.pdf
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    Bibliographic Info

    Article provided by University of Craiova, Faculty of Economics and Business Administration in its journal Annals of Computational Economics.

    Volume (Year): 3 (2012)
    Issue (Month): 40 ()
    Pages: 187-194

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    Handle: RePEc:aio:aucsse:v:3:y:2012:i:40:p:187-194

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    Related research

    Keywords: Derivates; Volatility; Financial Assets; Tranzaction costs; Speculative bubbles; Elasticity;

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    1. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
    2. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
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