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A General Financial Transaction Tax: The Concept, its Justification and Effects

  • Stephan Schulmeister

    (WIFO)

Initially this paper outlines the concept of a tax on all transactions to do with financial assets. It summarises the main arguments for and against such a tax. The next part documents the relevant empirical evidence necessary to be able to evaluate the arguments. In particular the development of financial transactions is documented, as well as the dynamic of exchange rates, raw material prices and share prices. The data would suggest that the introduction of a financial transaction tax would reduce the instability of such prices. Indeed it would reduce not only its short term volatility but also the longer term upwards and downwards trends ("bull markets" and "bear markets"). Finally the potential revenue of a transaction tax is estimated for three different rates of tax (0,1 percent, 0,05 percent and 0,01 percent). Due to the high trading volumes on the financial markets the revenue from such a tax would be considerable: with a tax rate of 0.05 percent the revenues in Germany were between 0.7 percent and 1.5 percent of GDP and in Europe between 0.9 percent and 2.1 percent.

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Paper provided by WIFO in its series WIFO Working Papers with number 352.

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Length: 21 pages
Date of creation: 10 Dec 2009
Date of revision:
Handle: RePEc:wfo:wpaper:y:2009:i:352
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  1. Barry Eichengreen, James Tobin, and Charles Wyplosz., 1994. "Two Cases for Sand in the Wheels of International Finance," Center for International and Development Economics Research (CIDER) Working Papers C94-045, University of California at Berkeley.
  2. Stephan Schulmeister, 2009. "Asset Price Fluctuations, Financial Crises and the Stabilizing Effects of a General Transaction Tax," WIFO Working Papers 340, WIFO.
  3. Stephan Schulmeister, 2008. "Profitability of Technical Stock Trading: Has it Moved from Daily to Intraday Data?," WIFO Working Papers 323, WIFO.
  4. Marc Schaberg & Dean Baker & Robert Pollin, 2002. "Securities Transaction Taxes for U.S. Financial Markets," Working Papers wp20, Political Economy Research Institute, University of Massachusetts at Amherst.
  5. Harry Huizinga, 2002. "A European VAT on financial services?," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 497-534, October.
  6. John Grahl, 2003. "Sand in the wheels or spanner in the works? The Tobin tax and global finance," Cambridge Journal of Economics, Oxford University Press, vol. 27(4), pages 597-621, July.
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