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Financial Transaction Tax Contributes to More Sustainability in Financial Markets

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  • Dorothea Schäfer

Abstract

We argue that a financial transaction tax complements financial market regulation. With the tax, governments have an additional instrument at hand to influence trading activity. FTT aims to reduce regulatory arbitrage, flash trading, overactive portfolio management, excessive leverage and speculative transactions of financial institutions. The focus clearly addresses these classes of activities that have contributed to the financial crisis. However, if contrary to expectations harmful transactions will not be curbed, FFT generates at least large tax revenues that can contribute to cover the costs of the financial crisis. The trend towards centralized clearing and depositaries makes tax evasion more difficult than it was in the past. Tax avoidance is, of course, never completely avoidable. Therefore the effect of the tax should be monitored closely so that governments can react quickly if tax loopholes and taxinduced geographical relocation plans of financial institutions come to light.

Suggested Citation

  • Dorothea Schäfer, 2012. "Financial Transaction Tax Contributes to More Sustainability in Financial Markets," Discussion Papers of DIW Berlin 1198, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1198
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    References listed on IDEAS

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    1. Dorothea Schäfer & Klaus Zimmermann, 2009. "Bad bank(s) and the recapitalisation of the banking sector," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 44(4), pages 215-225, July.
    2. Stephan Schulmeister, 2011. "Implementation of a General Financial Transactions Tax," WIFO Studies, WIFO, number 41992, February.
    3. Carol L. Clark, 2010. "Controlling risk in a lightning-speed trading environment," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
    4. Carol L. Clark, 2010. "Controlling risk in a lightning-speed trading environment," Policy Discussion Paper Series PDP-2010-01, Federal Reserve Bank of Chicago.
    5. Ms. Thornton Matheson, 2011. "Taxing Financial Transactions: Issues and Evidence," IMF Working Papers 2011/054, International Monetary Fund.
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    Cited by:

    1. Niamh Hardiman & Saliha Metinsoy, 2017. "How do ideas shape national preferences? The Financial Transaction Tax in Ireland," Working Papers 201710, Geary Institute, University College Dublin.
    2. Roman Šperka & Irena Szarowská, 2015. "Impact of a Financial Transaction Tax on a Financial Market," Working Papers 0013, Silesian University, School of Business Administration.
    3. Richard M. Bird, 2014. "Global Taxes and International Taxation: Mirage and Reality," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1429, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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    More about this item

    Keywords

    Financial stability; transaction tax; public good; central depository;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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