The task that Jean-Edouard Colliard and Peter Hoffmann set themselves involves comparing theory and practice, and from this drawing conclusions and making recommendations, on the subject of a tax on financial transactions. The idea of a such a tax was first suggested by Keynes and was subsequently revisited by James Tobin in the late 1970s, but putting it into practice still raises a number of questions.

What are the effects of such a tax on the volatility and liquidity of the market? And on prices? How does it affect market participants? To which financial products should it apply? Is it a substantial source of revenue for the state? Providing answers to these questions is made even more difficult by the complexity of the situation. There is not just one type of tax on financial transactions, but many. It has been applied not simply in a single market, but in a variety of markets throughout the world, each of them with different characteristics.

Nevertheless, it is now essential to address these questions, given that eleven European countries are considering the introduction of a common tax. Possible answers come from the study of transaction taxes already in place in the world, but the scenarios sometimes differ widely. Thus it does not seem appropriate to apply to Europe the lessons learned from taxes introduced in emerging countries. On the other hand, the British and French experiments appear to be more in line with European objectives, despite their smaller scale.

Europe’s intention to introduce an overall tax on financial transactions does seem to be ill-conceived, whatever its purpose. Some seek to reduce the volatility of the market, others are more interested in potential revenue. But in both cases, it is highly doubtful whether a tax on financial transactions would achieve the objectives targeted. For a given objective, it is essential to find the right tool. If the goal is to raise money, the researchers thus recommend stamp duties. If it is to limit volatility, the solution lies in regulation, not taxation. It is in any case important not to base political choices on poorly defined objectives and obsolete arguments.

Jean-Michel Beacco,
CEO of the Institut Louis Bachelier

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