Annotated Bibliography of Recent Studies

The Tobin Tax: A Review of the Evidence

McCullock, N. and Pacillo, G. 2011. The Tobin Tax: A Review of the Evidence. Institute of Development Studies. May 2011.

http://www.ids.ac.uk/go/idspublication/the-tobin-tax-a-review-of-the-evidence

Two economists at the influential and respected Institute of Development Studies have published a comprehensive systematic review of the evidence for and against financial transaction taxes (FTTs). The review provides important answers to questions of feasibility, potential revenue, progressiveness and market stability. On all counts they find that FTTs to have potential, including that FTTs seems “significantly more progressive” than other forms of taxation. Overall, the authors surprise themselves with an optimistic conclusion: “In short, we conclude that, somewhat contrary to our initial instincts, a financial transaction tax may not be such a bad idea after all.”

Taxing Financial Transactions: An Assessment of Administrative Feasibility

Brondolo, J. 2011. Taxing Financial Transactions: An Assessment of Administrative Feasibility. International Monetary Fund

http://www.imf.org/external/pubs/ft/wp/2011/wp11185.pdf

This paper examines the practical issues countries should deal with in the introduction and application of a financial transactions tax (FTT). While briefly reminding readers of the IMF’s preference for other types of financial sector taxes than the FTT, it observes the growing support for the FTT and concedes that “in principle, an FTT is no more difficult and, in some respects easier, to administer than other taxes”. It discusses in considerable detail the administrative challenges for applying an FTT and the ways to resolve them, as well as specific national experiences with the application of FTTs.

Fair Shares

Sanger, T., 2011. Fair Shares – How Banks, Brokers and the Financial Industry Can Pay Fairer Taxes. Canadian Centre for Policy Alternatives http://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2011/04/Fair%20Shares.pdf

This article by the Canadian Centre for Policy Alternatives examines the need for a fairer tax system in Canada. In the wake of the Global Financial Crisis, while most governments are trying to reign in their financial sectors, Canada is attempting to implement further corporate tax cuts for their insurance and finance sector. This papers shows that the Canadian financial industry has already benefited greatly from previous tax cuts, and advocates the introduction of fairer taxes on the industry. It achieves this by outlining the structure and possible effects of implementing bank levies, financial activities taxes or financial transactions taxes as potential tools for a fairer tax system. It recommends that Canada implements several domestic measures, including a financial activities tax, as well as pushing for international adoption of a financial transactions tax.

The Benefits of Financial Transactions Taxes

Baker, D., 2010. The Benefits of Financial Transactions Taxes: Statement to the Bundestag. Centre for Economic and Policy Research.

http://www.cepr.net/index.php/publications/testimony/the-benefits-of-financial-transactions-taxes/

This article is quick and simple look at the possible benefits of financial transaction taxes (FTTs), including the taxes being a substantial source of revenue with low administrative costs, a method of decreasing the volume of financial trading by raising the costs of trade and reducing the volatility of international markets. The paper concludes that an FTT would indeed raise substantial revenue, but its effects on market efficiency and volatility are likely to be limited. This is due, it is argued, to the relatively small size of the proposed financial transaction tax; at a low tax level the costs of trading would only be increased back to the rates they were at only a few decades ago and as such may only bring about a similar level of volatility as experienced in the 80s.

The Potential Revenue from Financial Transactions Taxes

Baker, D. Pollin, R. McArthur, T. and Sherman, M., 2009. The Potential Revenue from Financial Transactions Taxes. Center for Economic and Policy Research: Washington D.C., USA.
http://www.cepr.net/documents/publications/ftt-revenue-2009-12.pdf

This paper calculates the potential revenue raised from a set of financial transaction taxes, differentiated by trading type, based on 2008 trading volumes. It also estimates the revenue raised given different levels of trading reduction as a result of the taxes. Overall, the taxes are estimated to raise up to $353.8 billion annually, or $176.9 billion if trading falls by 50 percent. Assuming the 50 percent reduction in trading volumes, it estimates that over a 10 year period, the taxes would generate more than $1.7 trillion in revenue.

Currency Transactions Tax

Schmidt, R., 2008. The Currency Transaction Tax: Rate and Revenue Estimates. United Nations University Press: Tokyo, New York, London.
http://www.stampoutpoverty.org/?lid=10738
In this paper, the authors seek to identify an appropriate rate for a currency transactions tax (CTT); one which will raise the most revenue while avoiding major changes to fundamental market behaviour. They also estimate the potential revenue when the tax is applied unilaterally or to specific currencies. The paper concludes that the CTT is a feasible source of “at least US$33 billion a of independent, global, and stable revenue each year”.

Just How Much Do Individual Investors Lose by Trading?

Barber, B. Lee, Y. Lu, Y. and Odean, T., 2006. Just How Much Do Individuals Lose by Trading? Review of Financial Studies 22

http://finance.martinsewell.com/traders/Barber-etal2006.pdf

Using a case study of Taiwan, this article is an empirical analysis of the ways in which individual investors make systematic losses by participating in investment. It explains that frequent trading by individuals leads to economically large losses for those individuals as most individuals are untrained, hold undiversified portfolios and routinely make poor trading decisions. The authors estimate that individuals reduce their portfolio returns by about 3.8 percentage points annually. Conversely, they highlight that institutions with trained professionals make near-constant profits. The article recommends effective guidance for individual investors in order to curb the losses associated with individual investment.

And where it all began…..

A Proposal for International Monetary Reform

Tobin, James, 1978. A Proposal for International Monetary Reform. Yale University, Cowles Foundation Discussion Papers, No.506
http://ideas.repec.org/p/cwl/cwldpp/506.html

In 1978, Tobin argued that the basic problem in the international economy was not the organisation of exchange rates, free or fixed, but rather excessive international mobility of private financial capital. He explains that the sheer volume of movement in international currency markets is such that domestic policy is almost useless in offsetting the serious consequences these movements have in the real economy. He proposed to “throw some sand in the wheels of our excessively efficient international money markets” by implementing a uniform international tax on financial transactions, to be administered by each government over its own jurisdiction. This tax was proposed to be applied to all financial transactions that involved the exchanging of currencies; that is, any financial instrument denominated in another currency, be it coin, equity, securities or payments made for goods and services provided by a resident of another currency area.

More papers:

Bernd Spahn, P., 2002. On the Feasibility of a Tax on Foreign Exchange Transactions. Report commissioned by the Federal Ministry for Economic Cooperation and Development: Bonn
http://www.wiwi.uni-frankfurt.de/profs/spahn/tobintax/Chapter0.pdf

BIS, 2007. Triennial central bank survey of foreign exchange and derivatives market activity in April 2007. Statistical report, Bank for International Settlements: Basle.
http://www.bis.org/publ/rpfxf07t.htm

Darvas, Z. and von Weizsäcker, J, 2010. Financial Transaction Tax: Small is Beautiful. Bruegel Policy Contribution Issue 2010/02. http://www.bruegel.org/publications/publication-detail/publication/379-financial-transaction-taxsmall-is-beautiful/.

Dietz, M., et al., 2008. What’s in store for global banking. McKinsey Quarterly: January 2008
https://solutions.mckinsey.com/globalbankingpools/cms/_SiteNote/WWW/GetFile.aspx?uri=:/globalbankingpools/cms/gpp-content/en-us/article/Files/MainBloc/ProfitPoolsFinal_08fe84d7-d06a-4630-ad50-f737945ec1dc.pdf

Ehrenstein, G., F. Westerhoff, et al. (2005). “Tobin tax and market depth.” Quantitative Finance 5: 213–218
http://www.informaworld.com/smpp/content~content=a724004927&db=all

Grunberg, Isabelle, Inge Kaul and Mahbub ul Haq, (1996) The Tobin Tax: Coping with Financial Volatility. New York: Oxford University Press

Murphy, R., 2010. Taxing Banks. A joint submission to the International Monetary Fund: London, UK
http://www.taxresearch.org.uk/Documents/IMFTaxingBanks.pdf

Pollin, R., D. Baker & M. Schaberg, 2003. Securities Transaction Taxes for U.S. Financial Markets. Eastern Economic Journal 29/4: pp.527-58.
http://college.holycross.edu/eej/Volume29/V29N4P527_558.pdf

Schulmeister, S., et al., 2008. A General Financial Transaction Tax: Motives, Revenues, Feasibility and Effects. Austrian Institute of Economic Research: Austria.

Spratt, S., 2006. A Euro Solution: Implementing a stamp duty on Euro to finance international development. Stamp Out Poverty: London, UK
http://www.stampoutpoverty.org/?lid=10558

Spratt, S., 2006. A Sterling Solution: Implementing a stamp duty on Sterling to finance international development. Stamp Out Poverty: London, UK
http://www.stampoutpoverty.org/?lid=9889

Stiglitz, J., 1989. Using tax policy to curb speculative short-term trading, Journal of Financial Services Research: Vol. 3, pp.101-15
http://www.springerlink.com/content/n2804801534g5022/

Suescún, R., 2004. Raising Revenue with Transaction Taxes in Latin America – or is it better to tax the devil you know? World Bank Policy Research Working Paper 3279
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=610324

Summer, L.H. and Summers, V.P., 1989. When financial markets work too well: A cautious case for a securities transactions tax. J. Financial Serv. Res.: Vol3, pp. 261-286
http://www.springerlink.com/content/p016371m624r6742/