Un Grande Ecole dit non au Financial Transaction Tax

I think that the proposed Tobin/Finacial Transaction Tax is a daft idea. My reasons are those of my gut, not pretending to be an economist. I think that it is anti-democratic in its construction, as it will allow the European Elite to set tax rates without any effective democratic oversight. It is also another tax that will hit consumers as the costs will be inevitably passed onto them in increased bank charges. And it isn't as if we are not Taxed Enough Already.

So it was gratifying to read this morning that others with bigger and pointier heads than I have come against the whole idea.

The École De Hautes Études Commerciales du Nord, or EDHEC as it is known, or more precisely the Risk Institute based there is one of the great Grande Ecoles of France. And it is pretty clear in what it thinks about the FTT. In a letter to the Commission they have put it thusly,

The findings of theoretical models are mixed about the effectiveness of the Tobin tax to reduce volatility and improve welfare. The Tobin tax will obviously lead to a reduction in the trading of securities on which the tax is imposed. But, a reduction in the trading of financial securities also means that it is now more difficult to smooth consumption over time and across states of nature. The Tobin tax reduces speculative activity in financial markets; but, this tax also drives away investors who provide liquidity, stabilise prices, and help in the price discovery process.

So according to EDHEC it fails even under its own light.

The market works by increasing information, the FTT would reduce information, leading to worse and more ill-informed decisions.