The Potential of Financial Transactions Taxes

Abstract

The purpose of this paper is to examine the potentials of a range of financial transaction taxes (hereafter FTT). In the literature this term has included a wide range of different taxes: securities transaction tax, levied on transactions including equity, debt and their derivatives; currency transaction tax imposed on foreign exchange transactions, including their derivatives, currency futures, options and swaps; capital transaction tax, imposed in the form of loans and issuance of stocks and loans; bank transaction tax, which is a tax on bank accounts and withdrawals; insurance premium tax, imposed on insurance premiums; and real estate transaction tax, levied on the value of land when sold.1 In what follows we do not discuss all of these forms of financial transactions taxes. We do, however, indicate the form that is under consideration. It is true, nonetheless, that the emphasis in what follows in this contribution is on the first two types of financial transactions taxes, namely securities including derivatives and currency (see Matheson, 2011, for a comprehensive analysis of the issues involved in terms of these two types of financial transactions taxes along with the available evidence).2 The common feature, though, as the name suggests, is taxes on financial transactions, and hence the paper does not consider other taxes on the financial sector or part thereof such as excessive profits taxes, taxes that relate to the scale of bonuses, or taxes related to assets or liabilities of the banking system; we also do not consider here to any significant extent financial activity taxes (FAT) analogous to sales or value added tax on financial activities.