2011年-世界发展银行全球_Financial_Transactions_Tax___Panacea_Threat_or_Damp_Squib__24页_348kb

Summary of "Financial Transactions Tax: Panacea, Threat, or Damp Squib?"

Core Content

The article by Patrick Honohan and Sean Yoder evaluates the effectiveness and implications of Financial Transactions Taxes (FTTs) as a policy tool. It explores whether FTTs can serve as a corrective mechanism to improve economic efficiency or as a reliable revenue generator, especially in the context of the financial crisis.

Main Views

• FTTs as Corrective Taxes:
  FTTs were originally designed to reduce speculative activity and stabilize financial markets. Keynes proposed a Securities Transactions Tax (STT) to curb destabilizing equity speculation, while Tobin suggested a Currency Transactions Tax (CTT) to mitigate foreign exchange speculation. However, the authors argue that these taxes are unlikely to address the root causes of financial overtrading that led to the crisis.

• FTTs as Revenue Tools:
  While FTTs have revenue potential, especially in certain countries, the authors caution against overestimating the amount of revenue that can be generated. They emphasize that the financial sector's ability to adapt and avoid taxes can significantly reduce the actual revenue yield.

• FTTs and Market Behavior:
  The imposition of a broad-based FTT is likely to lead to a substantial restructuring of financial sector activity. However, this restructuring may not be in line with the goal of correcting the inefficiencies that caused the crisis. The incidence of the tax is also expected to fall mostly outside the financial sector, which undermines its corrective potential.

Key Information

Efficiency Considerations

• Market Volatility and Mispricing:
  FTTs were historically used to address asset price and exchange rate volatility, and to correct mispricing due to speculative flows. However, the literature shows that it is unclear whether an STT would reduce or increase volatility. In fact, speculation in liquid markets can be stabilizing.

• CDOs and CDS:

  • CDOs: The issues in the CDO market were more about misrating and risk misallocation than frequent trading. Therefore, a transactions tax would have limited impact on this sector.
  • CDS: These instruments were used to transfer and distribute risk, and while they may have contributed to market instability, a low-rate FTT would be ineffective in curbing the damage. CDS trading is not significantly affected by a tax on premiums, and a tax on the nominal debt insured would not address the efficiency problems of risk misallocation or market manipulation.

Revenue Potential

• Revenue from CTT:
  The Tobin tax was initially proposed as a corrective measure but has increasingly been viewed as a revenue source. However, its effectiveness in generating revenue is limited due to the potential for base migration and the relatively low tax rate that would not significantly deter trade.

• Revenue from STT:
  Some STTs, particularly in countries like the UK, have been projected to generate significant revenue (up to 13% of GDP). However, the authors argue that these projections are often exaggerated and that the financial sector can easily adapt to avoid even small tax rates.

• Bank Debit Taxes:
  These have been more successful in generating revenue in practice, especially in Latin America. For example, Brazil’s CPMF tax (0.38%) generated up to $10 billion annually, which was a significant portion of its government revenue. However, these taxes are not as comprehensive as FTTs and may not address broader systemic issues.

• Comprehensive FTT (APT):
  Feige's "Automated Payments Tax" (APT) is a broad-based tax covering all financial transactions. While it has the potential to replace other taxes and reduce deadweight costs, the authors caution that even a small tax rate could lead to a significant decline in transaction volumes, and the revenue generated may not be as substantial as claimed.

Tax Base and Rates

• Payments Transactions:
  The CPSS Red Book provides data on payments transactions, showing that the total value of payments in 2007 was approximately $3 trillion, which is about 36–147 times GDP depending on the country. This suggests that even a small tax rate could generate significant revenue, but the authors question whether the tax base is stable or responsive to changes in tax rates.

• Derivatives Transactions:
  Derivatives are a large part of financial activity, but they are not fully captured in payments data due to net settlement practices. The authors note that the scope of FTTs may need to be expanded to include derivatives to capture more revenue.

Conclusion

• FTTs are not a panacea:
  While FTTs may have some corrective potential, they are unlikely to significantly reduce the inefficiencies that contributed to the financial crisis. Their efficiency benefits are overstated.

• FTTs are not a threat:
  The authors suggest that FTTs may be less damaging than feared, as their implementation could be coordinated internationally, reducing leakage and enhancing their effectiveness.

• FTTs are a damp squib:
  Despite their potential to generate revenue, the actual yield is likely to be much lower than expected. The financial sector's ability to avoid taxes and the lack of clear evidence that FTTs reduce volatility or mispricing cast doubt on their efficacy as a corrective tool.

Structure and Scope of FTT

• A comprehensive FTT would need to cover a wide range of financial transactions, including both spot and derivative instruments.
• The tax base for such a tax is vast, but the response of the financial sector to tax changes is significant, which could lead to a substantial reduction in transaction volumes.
• The required tax rate to generate current levels of revenue is relatively high, which could deter economic activity and reduce the efficiency of financial markets.

Implications for Policy

• The authors caution against the over-enthusiastic adoption of FTTs as a solution to financial instability or as a major revenue source.
• They suggest that while FTTs may have some role in aligning financial sector incentives with social welfare, they are unlikely to be as effective as some advocates claim.
• The focus of current FTT proposals is more on revenue generation than on correcting the inefficiencies that led to the crisis, which raises concerns about their policy relevance.