Financial transactions tax: Don’t forget about incidence
Economist’s View has again come out in favour of a financial transactions tax.
Now I believe the version of the tax that Mark Thoma supports is different from the one we hear about from the more left wing parties in New Zealand (see here and here and here) – specifically, it is supposed to only be on trade that is seen as ‘high volume speculative financial trade’ … ultimately, it is a more traditional Tobin tax, rather than the tax on all financial transactions that has been raised here.
Even so, I am convinced it is subject to the same criticism – namely that:
- the incidence of the tax is likely to fall in unintended places,
- there is no reason to think volatility will decline following the introduction of such a tax
- there is no reason to think that the likelihood of “exchange rate bubbles” will decline following the tax – in fact by blunting the market price it may increase the likelihood of exchange rate misalignment
- there may be practical difficulties with such a tax – eg tax evasion by changing the name of purchases, buy commodities as a proxy for currency etc.
In truth, a financial transactions tax appears to be an indirect means for trying to achieve any goals – while I see why we may want to increase international co-operation/discussion regarding variables that impact on other countries (tax, exchange rate policy, monetary policy) a FTT/Robin Hood tax does not appear to be a silver bullet – or even a useful policy solution.
Update: Patrick Nolan from Reform discusses this in more detail – given that there is a sizable push towards this sort of tax over in the UK.