Financial Transaction Taxes in Theory and Practice

Abstract

We explore issues related to a financial transaction tax (FTT) in the United States. We trace the history and current practice of the tax in the United States and other countries, review evidence of its impact on financial markets, and explore the key design issues any such tax must address. We present new revenue and distributional effects of a hypothetical relatively broad-based FTT in the United States, finding that, at a base rate of 0.34 percent, it could raise a maximum of about 0.4 percent of GDP ($75 billion in 2017) in a highly progressive manner.

Keywords: financial transaction tax, taxation of financial sector, FTT design, FTT revenues, FTT distributional effects

JEL Classification: H21, H25, G12