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Financial Transactions Taxes Make the Economy More Efficient

Baker, Dean, (2017), “Financial Transactions Taxes Make the Economy More Efficient”, CEPR, 3 April

The government of Belgium is arguing that trades by these funds should not be subject to the tax. This objection makes little sense if the goal of the Belgium government is actually to protect the pension funds. Of course it is a great line of argument if the point is to sabotage the FTT while appearing to be supportive.

The reason why the objection makes little sense is that Belgium’s pension funds are likely to incur very little cost as a result of the tax. At 0.1 percent on stock trades, with scaled rates on other financial transactions, the tax is already low. But the bigger issue is that trading volume will fall in response to the tax. In other words, because the tax increases the cost of trading, pension funds like other investors will trade their stock less frequently.

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