Financial Transaction Tax: Small is Beautiful
AbstractThe case for taxing financial transactions merely to raise more revenues from the financial sector is not particularly strong. Better alternatives to tax the financial sector are likely to be available. However, a tax on financial transactions could be justified in order to limit socially undesirable transactions when more direct means of doing so are unavailable for political or practical reasons. Some financial transactions are indeed likely to do more harm than good, especially when they contribute to the systemic risk of the financial system. However, such a financial transaction tax should be very small, much smaller than the negative externalities in question, because it is a blunt instrument that also drives out socially useful transactions. There is a case for taxing over-the-counter derivative transactions at a somewhat higher rate than exchange-based derivative transactions. More targeted remedies to drive out socially undesirable transactions should be sought in parallel, which would allow, after their implementation, to reduce or even phase out financial transaction taxes.
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Bibliographic InfoPaper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1019.
Length: 30 pages
Date of creation: Sep 2010
Date of revision:
transaction tax; Tobin tax; financial transactions; global financial crisis; financial regulation;
Other versions of this item:
- Zsolt Darvas & Jakob von WeizsÃ¤cker, 2010. "Financial-Transaction Tax: Small Is Beautiful," Policy Contributions 379, Bruegel.
- Zsolt Darvas & Jakob von Weizsäcker, 2010. "Financial Transaction Tax: Small is Beautiful," Working Papers 1001, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest, revised 31 Aug 2010.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- F30 - International Economics - - International Finance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-10-23 (Accounting & Auditing)
- NEP-ALL-2010-10-23 (All new papers)
- NEP-PBE-2010-10-23 (Public Economics)
- NEP-PUB-2010-10-23 (Public Finance)
- NEP-REG-2010-10-23 (Regulation)
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