Vox
January 11, 2012Italy’s prime minister, Mario Monti, is the latest in a growing line of senior public figures to support the idea of a financial transaction tax - also known as a Tobin tax or Robin Hood tax. Rather than give a case for or against, this column looks at what the realistic options are and asks whether they will be better for Europe, or worse.
Last month, Italian Prime Minister Mario Monti announced that Italy is willing to reconsider its position on the so-called European Tobin tax, which had been opposed by the previous government. The renewed Italian support reinforces the European Commission’s September 2011 proposal to tax financial transactions. The proposal has given rise to a popular debate, in which the new tax has been viewed not only as a way to let financial institutions pay for their responsibility for the economic crisis (Persaud 2011), but also as a fundamental component of a broader reshaping of policy intervention in the financial markets (Beck and Huizinga 2011).
Taxation can be a powerful tool for curbing systemic risk, a peculiar case of externality resulting from contagion in financial markets. The externality arises because contagion effects are not completely internalised by the contracting parties. The possible failure of a specific portfolio can produce a generalised fear of counter-party credit risk, with potential domino effects that spread through the markets.
So far, the debate has considered normative aspects; for example, which is the best policy, and what its optimal level should be. The “positive” aspects have been somehow disregarded. We do not have even tentative answers, therefore, to questions like: “Which instrument are policymakers more likely to select, and at what level?”
More
No comments:
Post a Comment