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The Case for a Green Financial Transaction Tax

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Abstract

The aim of this note is to assess whether and how the Financial Transaction Tax (FTT) could be "greened"that is, adapted or utilized to support environmental objectives and the financing of the transition to a more sustainable economy. While traditionally conceived as a regulatory tool, the FTT also holds unexploited potential as an instrument for climate finance and broader environmental alignment. This paper outlines five complementary arguments in favor of a green FTT: (1) its capacity to mobilize stable, international funding for global public goods; (2) its symbolic relevance in light of the financial sector's contribution to social and environmental disruption; (3) its ability to modestly lengthen investment horizons and counteract excessive short-termism; (4) its potential to enhance public trust in finance by matching rhetoric about sustainable finance with contributions; and (5) its prospective use as a differentiated tool to reward environmentally responsible issuers. The paper also includes a first quantitative assessment of potential revenues from a tiered green FTT, illustrating how such a mechanism could operationalize the principle of common but differentiated responsibilities and respective capabilities in climate finance. While recognizing practical limitations (in terms of governance, data reliability, and risk of complexity) the paper concludes that a well-calibrated green FTT could be a simple yet effective lever in aligning financial markets with the ecological transition

Suggested Citation

  • Gunther Capelle-Blancard, 2025. "The Case for a Green Financial Transaction Tax," Documents de travail du Centre d'Economie de la Sorbonne 25012r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Oct 2025.
    • Handle: RePEc:mse:cesdoc:25012r
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    References listed on IDEAS

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    1. Gunther Capelle-Blancard & Avinash Persaud, 2025. "Levies on Equity Transactions to Finance Climate Action," Documents de travail du Centre d'Economie de la Sorbonne 25011, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Dyck, Alexander & Lins, Karl V. & Roth, Lukas & Wagner, Hannes F., 2019. "Do institutional investors drive corporate social responsibility? International evidence," Journal of Financial Economics, Elsevier, vol. 131(3), pages 693-714.
    3. Nofsinger, John R. & Sulaeman, Johan & Varma, Abhishek, 2019. "Institutional investors and corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 700-725.
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    Keywords

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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