The Rationale for a Financial Transaction Tax

This briefing specifically highlights the benefits of a Financial Transaction Tax (FTT). In political and scientific spheres the FTT is discussed alongside other proposals such as the bank levy or the Financial Activity Tax. The FTT is viewed as the most suitable instrument to help to achieve two objectives: (i) stabilize the markets and (ii) raise funds for domestic fiscal consolidation as well as global challenges such as climate change and poverty eradication. The study suggests that all types of financial transactions should have their trade taxed, which would help curtail particularly short term transactions. One-off transactions, for example for hedging purposes in the real economy, will however hardly be affected. Another advantage of a broad tax base is the fact that already a very small tax rate could yield high revenues. These amounts could help to consolidate national budgets. This consolidation could be linked to a clear fostering of international commitments for improved poverty reduction, mitigating climate change and support developing countries in their adaptation to climate change.