Forthcoming 1Q 2016: Chapter 10 in Lessons from the Great Recession: At the Crossroads of Sustainability and Recovery, edited by Constantin Gurdgiev, Liam Leonard & Alejandra Maria Gonzalez-Perez, Emerald, ASEJ, vol 18; ISBN: 978-1-78560-743-1
28 Pages Posted: 11 Jan 2016
Date Written: January 10, 2016
This chapter presents the results of the comprehensive literature survey and supportive empirical assessment of the potential impacts of the Financial Transactions Tax recently adopted by the European Commission in response to the significant financial sector misallocations arising from the Global Financial Crisis. A survey of fifty academic articles relating to both Financial Transaction Taxes and Tobin Taxes shows that although a reduction in liquidity can be expected from such taxes, the impacts this will have on volatility and efficiency in a market is less obvious. A regression model quantifying what the possible effect of an introduction of a 0.1% tax on financial transactions would be on trading volumes and levels of volatility in the European equity market confirms the survey results in broader terms. These results can be used to infer that such a tax would likely increase volatility levels but may not have much effect on trading volumes. As a result the proposed tax can be viewed as an exercise in revenue generation but not as a macro-prudential tool for addressing potential future shocks and imbalances within the European financial system.
Keywords: Financial Transactions Tax, Tobin Tax, Macro-prudential Regulation, Global Financial Crisis
JEL Classification: E58, E61, E62, E65, F33, F38, F42, F65, G01, G12, G14, G28
Suggested Citation: Suggested Citation
Gurdgiev, Constantin and Murphy, Barry, After the Flood Comes the Tax: European Road to Financial Transactions Tax (January 10, 2016). Forthcoming 1Q 2016: Chapter 10 in Lessons from the Great Recession: At the Crossroads of Sustainability and Recovery, edited by Constantin Gurdgiev, Liam Leonard & Alejandra Maria Gonzalez-Perez, Emerald, ASEJ, vol 18; ISBN: 978-1-78560-743-1. Available at SSRN: https://ssrn.com/abstract=2713332