The global financial crisis of 2007/08 revealed the necessity of improved stabilisation and regulation of the global as well as European financial markets. In this context, increased attention was given to financial transaction taxes and in 2011, the introduction of a European Union Financial Transaction Tax was first proposed. The objectives for this tax, set out by the European Commission, were tripartite: financial revenue generation, regulative strengthening and the improvement of the efficiency of financial markets.
The aim of this thesis is to examine whether the European Union Financial Transaction Tax would be an effective means to curb speculation in the European financial markets, and a suitable tax solution for the European Union. The thesis further analyses whether this tax could increase the financial markets efficiency, and contribute to a fair and substantial contribution of the financial sector to the participating countries’ public finances. In this regard, underlying theoretical concepts, potential positive effects of the transaction tax, as well as detriments and shortcomings are discussed.
Table of Contents
1 Introduction
1.1 Background
1.2 Research questions
1.3 Structure
2 Speculation in the financial markets
2.1 General definition
2.2 Implications of speculation on the real economy
3 Financial transaction taxes
3.1 History and developments
3.1.1 Stamp duty tax
3.1.2 Keynes’ financial transaction tax
3.1.3 Tobin Tax
3.1.4 Further developments until today
3.2 Typology of FTTs
3.2.1 Securities transaction tax
3.2.2 Currency transaction tax
3.2.3 Bank transaction tax
3.2.4 Registration tax
3.3 FTT objectives, effects and detriments
4 EU Financial Transaction Tax
4.1 Debate and developments
4.2 Form and scope
4.3 Objectives and effects
4.4 Problems, detriments and criticism
5 Practical FTT experiences
5.1 Sweden
5.2 France
5.3 Italy
6 Conclusion and outlook
6.1 Results
6.2 Outlook
Research Objectives and Topics
This thesis examines the effectiveness of the proposed European Union Financial Transaction Tax (EU FTT) as a mechanism to curb financial speculation and as a viable fiscal solution, while analyzing its potential to increase market efficiency and provide a fair contribution to public finances.
- Historical evolution of financial transaction tax (FTT) concepts including Tobin and Keynes.
- Taxonomies and structural types of FTTs applied in various jurisdictions.
- Evaluation of the EU FTT proposal, its legislative hurdles, and its intended scope.
- Analysis of practical experiences with national FTTs in Sweden, France, and Italy.
- Assessment of potential benefits, economic detriments, and implementation challenges.
Excerpt from the Book
2.2 Implications of speculation on the real economy
As mentioned before, speculation does not have to have negative implications per se. What is, however, harmful to stable financial markets and a well-functioning real economy is a certain kind of speculation which will be characterised in this section. One of the most well-known definitions of this type of speculation, which is still widely used today, was given by John Maynard Keynes in the 12th chapter of his famous 1936 book The General Theory of Employment, Interest and Money. He characterises a speculator as someone who is not concerned with the stable long-term development of an investment but instead primarily focuses on the forecast of short-term changes of a financial instrument’s valuation and current market trends. Thus, the emphasis of the speculator is not on the real value of an investment but on the market value it will reach in the short term, influenced by the – oftentimes irrational – behaviour of the public and therefore the psychology of the masses. Consequently, investment decisions are primarily made on the basis of other market participants, ignoring the underlying fundamental data of the investment opportunities (Keynes, 1936, p. 99ff.).
This fundamental value of an investment depicts its intrinsic value, based on a high volume of internal data of a company, neglecting perceived external assessments. It can be determined by internal financial ratios, such as the price-to-earnings ratio or the free cash flow, as well as multiple complex valuation methods, such as the Dividend Discount Model or the Residual Income Model, and usually differs from the investment’s market price (Björkegren, 2011, p. 8f.).
Summary of Chapters
1 Introduction: Provides the background of the EU FTT proposal, defines the research questions, and outlines the structure of the thesis.
2 Speculation in the financial markets: Defines the concept of speculation and analyzes its positive and negative impacts on the financial sector and the real economy.
3 Financial transaction taxes: Explores the historical context of FTT proposals and classifies the different types of transaction taxes currently utilized.
4 EU Financial Transaction Tax: Analyzes the specific proposal for an EU-wide tax, including its legislative progress, scope, and the arguments surrounding its implementation.
5 Practical FTT experiences: Reviews the empirical evidence from Sweden, France, and Italy to evaluate the potential real-world impact of an FTT.
6 Conclusion and outlook: Summarizes the key research findings and offers a final perspective on the future of the EU FTT.
Keywords
Financial Transaction Tax, EU FTT, Speculation, Financial Markets, Regulation, Tobin Tax, Keynes, Market Efficiency, Real Economy, Tax Revenue, High Frequency Trading, Noise Trading, Capital Gains, Market Volatility, Enhanced Cooperation
Frequently Asked Questions
What is the fundamental purpose of this thesis?
The thesis evaluates whether the proposed EU Financial Transaction Tax is an effective tool to limit excessive speculation and if it serves as a suitable fiscal policy for the European Union.
What are the primary themes discussed?
The paper covers the historical development of transaction taxes, the typology of different FTT designs, the specific EU legislative proposal, and the economic pros and cons of such taxes.
What is the core research question?
The study aims to answer whether the introduction of the EU FTT would successfully fulfill its goals of curbing financial speculation and stabilizing the market.
Which scientific methodology is applied?
The work employs a qualitative analysis, reviewing academic literature, theoretical tax concepts from experts like Keynes and Tobin, and case studies of national FTT experiences.
What is covered in the main section of the paper?
The main part details the history and theory of FTTs, the specific structure of the EU's "triple A" approach, and analyzes the failures and successes of national implementations.
Which keywords characterize this work?
Key terms include Financial Transaction Tax, Speculation, EU FTT, Market Liquidity, Noise Trading, and Fiscal Policy.
How does the "liquidity effect" influence the tax proposal?
The "liquidity effect" describes the risk that an FTT may cause market volume to shrink, as high-frequency and short-term traders might relocate to jurisdictions without such taxes.
Why has the implementation of the EU FTT faced such significant delays?
The delays are primarily due to a lack of consensus among member states, legal challenges regarding the scope of jurisdiction, and concerns about negative impacts on the real economy.
What lessons are drawn from the Swedish FTT case study?
The Swedish example serves as a cautionary tale of "disastrous failure," demonstrating how an unfavorable FTT can trigger massive capital outflows and provide disappointing tax revenue.
- Citation du texte
- Sabrina Schleimer (Auteur), 2017, EU Financial Transaction Tax. An Effective Means to Curb Speculation in Financial Markets?, Munich, GRIN Verlag, https://www.grin.com/document/381034
