Only a broad-based financial transaction tax will be effective

SULEIKA REINERS 26 April 2014

A well constituted financial transaction tax (FTT, or Tobin tax) can not only reduce levels of inequality but also curb some of the destructive elements of financial activity and make a positive contribution to economic growth.

Just as with any other tax, the success of a financial transaction tax (FTT) rests entirely in its design. An FTT on security transactions is currently under debate in the context of enhanced cooperation of eleven EU member states. Implementation could go two ways: either the tax is ineffective or it successfully contributes to economic sustainability. A broad-based tax covering shares, bonds, derivatives and currencies can contribute to preventing financial speculation. Omission of securities on the other hand, is a clear invitation to circumvention. If, for example, derivatives or currencies, the biggest financial markets, remain untaxed even more trade will switch to them. This would clearly contradict the objective of the European Commission’s proposal to establish a broad-based tax to avoid evasive actions.