Financial Transaction Taxes: Benefits and Cost

Christopher L. Culp

Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise; Swiss Finance Institute; Compass Lexecon; Risk Management Consulting Services, Inc.

March 16, 2010

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.

Number of Pages in PDF File: 45

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Date posted: March 22, 2010 ; Last revised: December 21, 2014

Suggested Citation

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

Contact Information

Christopher L. Culp (Contact Author)
Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise ( email )
3400 N. Charles Street
Baltimore, MD 21218
United States
Swiss Finance Institute ( email )
c/o University of Geneva
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CH-1211 Geneva 4
Compass Lexecon ( email )
332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States
Risk Management Consulting Services, Inc. ( email )
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Chicago, IL Illinois 60610
United States
3125877163 (Phone)
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