With regard to the transaction tax, there is no evidence that a transaction tax would achieve its desired objectives – although, there is much evidence that it would be highly damaging to liquidity, raise costs for end consumers in financial markets and damage economic growth. Indeed, even the EU’s own estimates suggest a 1.8 per cent drop in the value of economic output from such a tax. And it is highly doubtful that it would raise much money. It is commonly argued that a transaction tax would stop harmful transactions and ensure that finance served the common good.
This is entirely wrong. A transactions tax would actually weigh more heavily on primary equity transactions than on derivatives. In general, a transaction tax is a terrible idea for voters – but great for politicians. It is literally impossible to work out who would actually bear the underlying pain from a transaction tax. Would it be workers, banks’ customers, pension fund members or bank shareholders? We have no idea – though it is very unlikely to be banks’ senior managers, who seem to be the main target of the wrath of the proponents of such a tax.
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