Hostname: page-component-cd9895bd7-mkpzs Total loading time: 0 Render date: 2024-12-25T05:36:43.427Z Has data issue: false hasContentIssue false
  • English
  • Français

Introducing a 0.05% Financial Transactions Tax as an Instrument of Global Justice and Market Efficiency

Published online by Cambridge University Press:  19 November 2013

Ross P. BUCKLEY
Ross P. BUCKLEY*
Affiliation:
University of New South Wales, [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

A financial transactions tax (FTT) is a tax on wholesale capital market transactions, which civil society has long advocated for on grounds of social justice. This so-called “Robin Hood Tax” would take from the rich and give to the poor. Revenue estimates for a global FTT of 0.05 percent are around US$500 billion per annum. One-quarter of this revenue stream can achieve the first six Millennium Development Goals relating to poverty, health, and education. Even if the developed countries retain all of the revenue raised, the impost would see financial services institutions making a fairer contribution to the societies in which they operate. Thus, as an instrument of justice, the potential of an FTT is great—but, most of all, such a tax will enhance the operations of contemporary financial markets substantially. This paper explores the potential of such a tax, the arguments for and against it, and its feasibility.

Type
Articles
Information
Asian Journal of International Law , Volume 4 , Issue 1 , January 2014 , pp. 153 - 167
Copyright
Copyright © Asian Journal of International Law 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Scientia Professor and Centre for International Finance and Regulation (CIFR) King & Wood Mallesons Chair of International Finance Law, University of New South Wales, Sydney, Australia; Fellow, Asian Institute for International Finance Law, University of Hong Kong, Hong Kong. The author sincerely thanks the Australian Research Council for the Discovery Grant which supported this research; the two anonymous referees whose questions, comments, and insights greatly improved the final version; and the participants at the joint conference of the Asian and Australian and New Zealand Societies of International Law on “International Law and Justice” in Sydney on 25−26 October 2012 for their insightful comments on an earlier draft. The author would also like to thank Rebecca Stanley, Vivianne Schwarcz, and Laura Ferraro for their invaluable research assistance. The responsibility for any errors remains with the author.

References

1. James DAVIES, et al., “The World Distribution of Household Wealth”, Centre for Global, International and Regional Studies, University of California, Santa Cruz, Commissioned Paper, 28 November 2007Google Scholar

2. MILANOVIC, Branko, “The Real Winners and Losers of Globalization” The Globalist (25 October 2012)Google Scholar

3. CHEN, Shaohua and RAVALLION, Martin, “An Update to the World Bank's Estimates of Consumption Poverty in the Developing World”, Development Research Group, The World Bank, Briefing Note, 1 March 2012Google Scholar

4. United Nations, “The Millennium Development Goals Report 2011” (June 2011), online: UN 〈http://www.un.org/millenniumgoals/pdf/(2011_E)%20MDG%20Report%202011_Book%20LR.pdf〉 at 7.

5. Ibid.

6. The World Bank and the International Monetary Fund, “Global Monitoring Report 2011: Improving the Odds of Achieving the MDGs—Heterogeneity, Gaps, and Challenges” (2011), online: SEA Change 〈http://www.seachangecop.org/sites/default/files/documents/2011%2004%20World%20Bank%20-%20Global%20Monitoring%20Report%202011.pdf〉 at 14.

7. Over 600 civil society groups are involved in the Robin Hood Tax campaign globally, including Oxfam, World Vision, The Salvation Army, UNICEF, and Comic Relief.

8. KEYNES, John Maynard, The General Theory of Employment, Interest and Money (London: Macmillan and Co., Limited, 1936) at 156Google Scholar

9. TOBIN, James, “A Proposal for International Monetary Reform” (1978) 4 Eastern Economic Journal 153 at 153−159Google Scholar

10. SCHULMEISTER, Stephen, “Boom-Bust Cycles and Trading Practices in Asset Markets, the Real Economy and the Effects of a Financial Transaction Tax”, Austrian Institute of Economic Research, Working Paper (2010) at 21–22Google Scholar

LAWSON, Max, “Financial Transaction Tax—The Time is Now!” Rethinking Finance (16 December 2009)Google Scholar

MCCULLOCH, Neil and PACILLO, Grazia, “The Tobin Tax: A Review of the Evidence”, Institute of Development Studies, Research Report, May 2011 at 68Google Scholar

11. MCNAIR, David, “Who's Going to Pay for the MDGs?” Guardian (Poverty Matters Blog) (23 January 2012)Google Scholar

Jean-Philippe STIJNS, et al., eds., Can We Still Achieve the Millennium Development Goals? From Costs to Policies (OECD Publishing, 2012) at 33−43Google Scholar

12. FEENY, Simon and SILVA, Ashton DE, “Measuring Absorptive Capacity Constraints To Foreign Aid” (2012) 29 Economic Modelling 725 at 725−733CrossRefGoogle Scholar

RENZIO, Paolo DE, “Increased Aid vs Absorptive Capacity: Challenges and Opportunities Towards 2015” (2005) 36 IDS Bulletin 20CrossRefGoogle Scholar

13. See online: The Robin Hood Tax 〈http://robinhoodtax.org/sites/default/files/Robin%20Hood%20Tax%20FAQ.pdf〉.

14. Ibid.

15. The Volcker Rule is named after former Chairman of the US Federal Reserve system, Paul Volcker. The basic idea is that banks that accept deposits from the public should not engage in proprietary trading. It is now enshrined in s. 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (commonly known as the Dodd Frank Act), which prohibits depository institutions and their affiliates from engaging in proprietary trading, or acquiring or retaining an interest in a hedge fund or a private equity fund, or sponsoring a hedge fund or a private equity fund.

16. SCOTT, Mark and KANTER, James, “Europe Votes to Curb Bank Bonuses” The New York Times (16 April 2013)Google Scholar

BRUNSDEN, Jim, “EU Governments Approve Banker Pay Curbs as U.K. Objects” Bloomberg (27 March 2013)Google Scholar

Kevin CROWLEY et al., “Europe's Bonus Clampdown Hits Two-Thirds of Fund Managers” Bloomberg (22 March 2013)Google Scholar

17. Most post-GFC reforms have simply tried to make regulatory measures, that were in place before the crisis, work better, such as reforms aimed at improving the efficacy of disclosure regimes. The Volcker Rule is not really new as it is in the main part simply a return to the division between investment and commercial banking instituted by the Glass-Steagall Act. However, limits on bank executive compensation is a new measure, and not an attempted enhancement of an old measure.

18. SCHULMEISTER, Stephan, “A General Financial Transactions Tax: Motives, Effects and Implementation”, Austrian Institute of Economic Research, Brussels Tax Forum 2011, Summary of a Presentation (29 March 2011)Google Scholar

19. SCHULMEISTER, Stephan, “A General Financial Transactions Tax: A Short Cut of the Pros, the Cons and a Proposal”, Austrian Institute of Economic Research, Working Paper, October 2009 at 5Google Scholar

20. DARVAS, Zsolt and WEIZSÄCKER, Jakob VON, “Financial-Transaction Tax: Small is Beautiful”, Bruegel Policy Contribution, 8 February 2010 at 5Google Scholar

CANOVA, Timothy A., “Financial Market Failure as a Crisis in the Rule of Law: From Market Fundamentalism to a New Keynesian Regulatory Model” (2009) 3 Harvard Law & Policy Review 369 at 388Google Scholar

21. Algorithmic trading uses high-speed computer programs to generate, route, and execute orders. The Australian Securities and Investments Commission defines algorithmic trading as “computer-generated trading activity where trading parameters are determined by strict adherence to a predetermined set of rules, aimed at delivering specific execution outcomes”. See Australian Securities and Investments Commission, “Market Assessment Report: ASX Group, Report 222” (November 2010), online: ASIC 〈http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep222.pdf/$file/rep222.pdf〉.

22. HEWETT, Jennifer, “No Rush into Dark Pools” Financial Review (21 November 2012)Google Scholar

MATHESON, Thornton, “Taxing Financial Transactions: Issues and Evidence”, International Monetary Fund, Working Paper, March 2011 at 19Google Scholar

23. Matheson, supra note 22 at 19Google Scholar

24. BRIGAGLIANO, James A., “Speech by SEC Staff: Remarks at the Trader Forum 2009 Fall Workshop: Securities Markets and Regulatory Reform”, Address at the Trader Forum Fall Workshop, 8 October 2009Google Scholar

25. Ibid. See also International Organization of Securities Commissions (IOSCO), “Regulator Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency” (July 2011), online: Securities Technology Monitor 〈www.securitiestechnologymonitor.com/news/iosco.php〉.

26. WILLIAMS, Tee, “Oh Dear! I'm Queued! It's Latency!” Mondo Visione (29 October 2008)Google Scholar

27. BUCKLEY, Ross and NORTH, Gill, “A Financial Transaction Tax: Inefficient or Needed Systemic Reform?” (2012) 43 Georgetown International Law Journal 745Google Scholar

28. See European Commission, “Commission Staff Working Document: Innovative Financing at a Global Level” (1 April 2010), online: European Commission 〈http://ec.europa.eu/economy_finance/articles/international/documents/innovative_financing_global_level_sec2010_409en.pdf〉 at 19 [European Commission, “Commission Staff Working Document”].

29. Robert POLLIN et al., “Securities Transaction Taxes for U.S. Financial Markets” (2003) 29 Eastern Economic Journal 527 at 542Google Scholar

30. European Commission, “Commission Staff Working Document”, supra note 28 at 19.

31. Schulmeister, supra note 10Google Scholar

32. European Commission, “Proposal for a Council Decision on the System of Own Resources of the European Union” (29 June 2011), online: European Commission 〈http://ec.europa.eu/budget/library/biblio/documents/fin_fwk1420/proposal_council_own_resources_en.pdf〉 at 5 [European Commission, “Proposal”].

33. INMAN, Phillip, “EU Approves Financial Transaction Tax for 11 Eurozone Countries” The Guardian (22 January 2013)Google Scholar

DIZARD, John, “Trouble Brews over EU Transactions Tax” Financial Times (12 April 2013)Google Scholar

MIECAMP, Julie, “Europe's Financial Transaction Tax Could Be Boost to Loan Market” Bloomberg (15 February 2013)Google Scholar

34. European Commission, “Proposal”, supra note 32 at 5; Inman, supra note 33.

35. BUCKLEY, Ross and NORTH, Gill, “A Fundamental Re-examination of Efficiency in Capital Markets in Light of the Global Financial Crisis” (2010) 33 University of New South Wales Law Journal 714Google Scholar

36. The Aspen Institute, “Overcoming Short-Termism: A Call For a More Responsible Approach To Investment and Business Management” (9 September 2009), online: The Aspen Institute 〈http://www.aspeninstitute.org/sites/default/files/content/images/Overcoming%20Short-termism%20AspenCVSG%2015dec09.pdf〉.

37. Schulmeister, supra note 10 at 1Google Scholar

38. Ibid.

39. BUCKLEY, Ross and ARNER, Douglas, From Crisis to Crisis: The Global Financial System and Regulatory Failure (The Hague: Kluwer Law International, 2011) at 1−360Google Scholar

40. Nations, United, “Report of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System” (21 September 2009)Google Scholar

TURNER, Adair, “Address at the City Banquet”, The Mansion House, London, Speech, 22 September 2009Google Scholar

41. DEWATRIPONT, Mathias and FREIXAS, Xaviereds., “The Crisis Aftermath: New Regulatory Paradigms”, Centre for Economic Policy Research, Report, 30 March 2012 at 1Google Scholar

42. STIGLITZ, Joseph, “Using Tax Policy to Curb Speculative Short-term Trading” (1989) 3 Journal of Financial Services Research 101 at 109CrossRefGoogle Scholar

SUMMERS, Lawrence and SUMMERS, Victoria, “When Financial Markets Work Too Well: A Cautious Case for a Securities Transaction Tax” (1989) 3 Journal of Financial Services Research 261 at 270CrossRefGoogle Scholar

BAKER, Dean, “The Benefits of a Financial Transaction Tax”, Center for Economic and Policy Research, Article, December 2008Google Scholar

BLAIR, Margaret, “Financial Innovation and the Distribution of Wealth and Income”, Vanderbilt University Law School, Working Paper, June 2010 at 29Google Scholar

Financial Crisis Inquiry Commission, “The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States” (January 2011)Google Scholar

43. Report of the Commission of Experts, supra 40 at 47.

44. MONAGHAN, Angela, “Tax ‘Socially Useless’ Banks, Says FSA Chief Lord Turner” The Telegraph (27 August 2009)Google Scholar

45. Turner, supra note 40Google Scholar

46. RAWLS, John, A Theory of Justice (Cambridge, MA: Belknap Press of Harvard University Press, 1971) at 136−142Google Scholar

47. BRONDOLO, John, “Taxing Financial Transactions: An Assessment of Administrative Feasibility”, International Monetary Fund, Working Paper, 1 August 2011 at 5Google Scholar

48. CHOUDHURY, Ambereen and CHRISTIE, Rebecca, “EU Financial Transaction Tax Seen Costing Britain $6 Billion”, Bloomberg (3 April 2013)Google Scholar

BARKER, Alex and POLITI, James, “Brussels Proposes €30bn ‘Tobin Tax’ ” Financial Times (14 February 2013)Google Scholar

PERSAUD, Avinash, “Don't Believe Bankers’ Warnings About a Robin Hood Tax”, The Guardian (13 March 2013)Google Scholar

49. KOVACHEVA, Ralitsa, “Pros and Cons Of a European Tax on Financial Sector” euinside (10 November 2011)Google Scholar

50. McCulloch and Pacillo, supra note 10Google Scholar

51. International Monetary Fund, “A Fair and Substantial Contribution By the Financial Sector: Final Report for the G-20” (June 2010)Google Scholar

Brooke MASTERS et al., “IMF Calls For Bank Balance Sheets” Financial Times (20 April 2010)Google Scholar

52. Buckley and North, supra note 35 at 714−744Google Scholar

53. Gordon MENZIES, et al., “Asset Price Regulators Unite: You have the Macroeconomy to Win and the Microeconomic Losses are Small” (2011) 87 Economic Record 449CrossRefGoogle Scholar

54. Gordon MENZIES, et al., “The Economic Costs of US Stock Mispricing” (2011) 33 Journal of Policy Modeling 552CrossRefGoogle Scholar

55. WORSTALL, Tim, “Why We don't do Hypothecation of Taxes”, Adam Smith Institute, Blog, 28 August 2010Google Scholar

SEELY, Antony, “Hypothecated Taxation”, House of Commons Library, UK Parliament, 27 September 2011Google Scholar

56. KIM, Young-Chul, “Understanding the Silence Amid Turmoil: The Tobin Tax and East Asia” in James WEAVER et al., eds., Debating The Tobin Tax: New Rules for Global Finance, (Washington, DC: New Rules for Global Finance Coalition, 2003), 135Google Scholar

57. NINGZHU, Zhu, “Tobin Tax Estimated To Add 740 Mln USD To S. Korea's Tax Revenue” Xinhua News Agency (21 February 2013)Google Scholar

RANGANATHAN, Vidya, “Korea Becomes the Red Flag for Asia's Currency War” Reuters (1 February 2013)Google Scholar

SEUNGKI, Yoo, “S. Korean President-elect Park Stresses Currency Stabilization” Xinhua News Agency (20 February 2013)Google Scholar

58. MAIN, Carla, “Won Bets Ease As South Korean Calls For Transaction Tax Escalate” Bloomberg (3 April 2013)Google Scholar

59. Xiaotian, WANG, “Safe Promises Crackdown on ‘Hot Money’ ” China Daily (5 August 2011)Google Scholar

SHAW, Joy C. and YU, Rose, “PBOC Adviser Mulls Tobin Tax” Wall Street Journal (25 November 2010)Google Scholar

LEUNG, Sophie and AVERY, Nerys, “China's PBOC Plans to Strengthen Liquidity Management” Bloomberg (25 November 2010)Google Scholar

60. Wang, supra note 59Google Scholar

61. CONWAY, Edmund, “ ‘Robin Hood’ Bank Tax Wins Backing of Japanese Foreign Minister” The Telegraph (2 March 2010)Google Scholar

62. Toru, FUJIOKA, “Japan Should Impose Taxes on Financial Trading, Minezaki Says” Bloomberg (17 February 2010)Google Scholar

63. Stewart, Heather, “Robin Hood Tax: 1,000 Economists Urge G20 to Accept Tobin Tax” The Guardian (13 April 2011)Google Scholar