Would a Financial Transaction Tax Affect Financial Market Activity? Insights from Futures Markets
In the wake of the recent financial crisis, several commentators have suggested a transaction tax on financial markets. Such a tax was recently enacted in France. The potential consequences of such a tax could be hazardous to the financial markets affected as well as to the economy, say the authors of this report.
The paper reviews the relevant theoretical and empirical literature and applies the findings to estimate the possible impact of a transaction tax on U.S. futures market activity as well as its utility as potential tax revenues. The authors conclude a transaction tax on futures trading would fail to generate the expected tax revenue and likely would drive business away from U.S. exchanges and toward untaxed foreign markets.