The Agenda

Round II on the Financial Transactions Tax

So Arpit Gupta, a regular in these parts, wrote in to suggest that Rogoff was being far too hard on the FTT. As a fan of the FTT, he felt that my last post on the subject wasn’t favorable enough to the proposal as it implicitly lent credence to Rogoff’s view that it might negatively impact investment:

When it comes to long-run capital accumulation and investment; a transaction tax is so minor that it’s difficult to imagine any negative consequences. It’s true that Sweden tried and failed to implement such a tax — both due to the fact that the implemented tax was quite high (several orders of magnitude higher than anything proposed today I believe); as well as the fact that Sweden wasn’t exactly a trading hub. Places like New York and London on the other hand are such lucrative centers of finance that such minor stamp levies have minuscule effects. 

In my view the balance of evidence is enormously on the side of transaction taxes. Countries like Britain have implemented them, experienced no real side effects, while raising large sums of revenues. The form of trading most impacted has little social value, quite possibly negative value. It strains credulity to imagine that such minor proposed levies will impact capital investment in any tangible way. I’m surprised to see you call this is a “good arguments on both sides” debate. I’m very anti-tax in general, and certainly anti-capital taxes; yet I see transaction taxes as a pretty slam-dunk case. 

Arpit also passed along a post the downside of high-frequency trading, which would be most negatively impacted by the FTT, by physicist Mark Buchanan. 

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