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The European Commission's Proposal for a Financial Transactions Tax: A Critical Assessment

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  • John Grahl
  • Photis Lysandrou

Abstract

A financial activities tax (FAT) and a financial transactions tax (FTT) are the main alternative ways of recouping some of the public money used to bail out the financial sector after the great crisis of 2007–08. In preparing a common proposal for the European Union, the European Commission initially appeared to favour the FAT, but then swung its weight behind the FTT in late 2011. Its rationale was that in addition to generating revenue, this tax could also help to stabilize the financial markets by curbing excessive speculative trading. This article takes a different position. Its central argument is that the FTT would amplify rather than dampen market instability by interfering with the functions of important financial institutions. Its chief conclusion is that the FAT is superior to the FTT.

Suggested Citation

  • John Grahl & Photis Lysandrou, 2014. "The European Commission's Proposal for a Financial Transactions Tax: A Critical Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 52(2), pages 234-249, March.
    • Handle: RePEc:bla:jcmkts:v:52:y:2014:i:2:p:234-249
    DOI: 10.1111/jcms.12086
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    References listed on IDEAS

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    1. Stephan Schulmeister, 2011. "Implementation of a General Financial Transactions Tax," WIFO Studies, WIFO, number 41992, June.
    2. European Commission, 2010. "Innovative Financing at a Global Level," Taxation Papers 23, Directorate General Taxation and Customs Union, European Commission.
    3. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    4. John Vella & Clemens Fuest & Tim Schmidt-Eisenlohr, 2011. "The EU Commission's Proposal for a Financial Transaction Tax," Working Papers 1117, Oxford University Centre for Business Taxation.
    5. John Grahl, 2003. "Sand in the wheels or spanner in the works? The Tobin tax and global finance," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 27(4), pages 597-621, July.
    6. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
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    Cited by:

    1. Photis Lysandrou, 2016. "The colonization of the future: An alternative view of financialization and its portents," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(4), pages 444-472, October.
    2. Bratis, Theodoros & Laopodis, Nikiforos T. & Kouretas, Georgios P., 2017. "Assessing the impact of an EU financial transactions tax on asset volatility: An event study," International Review of Financial Analysis, Elsevier, vol. 53(C), pages 12-24.
    3. Annina Kaltenbrunner & Photis Lysandrou, 2017. "The US Dollar's Continuing Hegemony as an International Currency: A Double-matrix Analysis," Development and Change, International Institute of Social Studies, vol. 48(4), pages 663-691, July.
    4. Lisa Kastner, 2017. "Business lobbying under salience," Post-Print hal-02187871, HAL.

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