Financial transaction taxes and market structure: Lessons from the gambling industry

Although a number of tax authorities have considered introducing some form of financial transaction tax (FTT) on specific types of financial transaction, implementation has proved politically contentious. We argue here that this debate can be usefully informed by the experience of applying margin-based taxes in gambling sectors. Both our theoretical framework and previous empirical evidence show clear advantages from using margin-based taxation over turnover taxation in these sectors, and we demonstrate that the size of the advantage depends on market structure. Importantly, market structure has not hitherto been explicitly considered in the FTT policy debates, nor in the wider academic literature. Our findings contribute, therefore, in a novel way to the ongoing debate over the optimal form of financial market taxation.