Tuesday, 22 November 2011

The case against a financial transactions tax

There is a new web publication from the IEA on The case against a financial transactions tax by Tim Worstall. The main points made in the article are:
  • There is strong economic evidence that the proposed Financial Transactions Tax (FTT) would not increase the amount of tax revenue collected by governments. In fact it would reduce total tax revenue by shrinking the economy.
  • Workers and consumers in general - not the banks - would carry the main economic burden of the FTT. Wages would be lower because the tax would increase the cost of capital, thereby reducing growth in productivity.
  • Returns on pension funds and other savings would also be lower, in part because the FTT would increase the costs of buying and selling shares as well as reducing their values.
  • The FTT would not have prevented the financial crisis, nor would it have avoided current sovereign debt problems. The tax would shrink those parts of the financial markets which did not contribute to the recent crisis but would not make much difference to the factors that caused the crash.
  • The FTT would not reduce volatility; it would increase it. Market movements will come in larger steps if speculation is discouraged. It is preferable to have deep and liquid markets so that changes are incremental and smooth.
The Green Party supports such a tax if all countries were to implement one, while the Maori Party and Hone Harawira are also in favour. May be they should read the essay.


Anonymous said...

The case for an FTT doesn't rest on economic logic, of course, rather it rests on politicians pandering to people who need to blame someone, anyone, for economic crises, other than the politicians themselves naturally.
Jeff W

V said...

But would these be a case for FTT if business and income taxes were reduced to compensate for the tax revenue from FTT. FTT seems like it would treat all transations equally?

(Not that I think Mana or Greens would do this)