Abstract

http://ssrn.com/abstract=1572962
 


 



Financial Transaction Taxes: Benefits and Cost


Christopher L. Culp


Risk Management Consulting Services, Inc.; Compass Lexecon

March 16, 2010


Abstract:     
Proponents of financial transaction taxes (“FTTs”) claim that such taxes will raise revenue and discourage “destabilizing speculation.” Opponents of FTTs claim that they are unlikely to achieve their stated goals and that FTTs will harm the performance of financial markets by reducing market depth and liquidity, increase market volatility, put downward pressure on asset prices, increase the costs of raising capital, and diminish the international competitiveness of the U.S. financial services industry. This paper evaluates the likely economic consequences of the establishment of FTTs in the United States based on the economic literature and empirical research on various FTTs that have been imposed throughout the world in recent decades. The research indicates that FTTs are unlikely to generate significant revenue and are likely to interfere with the performance of U.S. financial markets. Specifically: (i) the dual goals of FTTs to deter speculation and raise revenue are irreconcilably at odds with one another; (ii) FTTs raise the cost of financial transactions often by significant amounts; (iii) FTTs likely will have adverse impacts on asset prices and will engender commensurate increases in the costs of capital for many corporations; (iv) FTTs likely will divert trading to untaxed jurisdictions and financial markets; (v) FTTs would not necessarily reduce price volatility and, in some instances, can increase price volatility as a result of reduced liquidity; and (vi) FTTs are not expected to affect managerial decision making.

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Date posted: March 22, 2010 ; Last revised: March 28, 2012

Suggested Citation

Culp, Christopher L., Financial Transaction Taxes: Benefits and Cost (March 16, 2010). Available at SSRN: http://ssrn.com/abstract=1572962 or http://dx.doi.org/10.2139/ssrn.1572962

Contact Information

Christopher L. Culp (Contact Author)
Risk Management Consulting Services, Inc. ( email )
25 E Superior St
#1806
Chicago, IL 60611
United States
HOME PAGE: http://www.rmcsinc.com
Compass Lexecon ( email )
332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States
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