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Berlin Institute Favours Financial Transactions Tax

by Ulrika Lomas,, Brussels

29 September 2011

Financial experts from the Deutsche Institut für Wirtschaftsforschung (DIW), the largest economics research institute in Germany, have called for a financial transactions tax to be introduced as quickly as possible – if necessary in just the eurozone.

Chairman of the DIW executive board Gert Wagner and research director of financial markets Dorothea Schäfer underline in a recent article the need to at least “try out” or “speculate” on such a tax, given the huge problems caused by speculation and by computer generated sell-offs. That we are currently in the fourth year of the financial crisis is justification enough, they argue, for the introduction of a transactions tax as quickly as possible to endeavour to improve the situation.

Alluding to the fact that a transactions tax levied on stock market trade would undoubtedly serve to generate additional fiscal revenues for the tax authorities, the DIW experts emphasize that this is not, however, the aim of the levy. The tax, they insist, is specifically intended to reduce the number of stock market transactions and to help prevent extreme fluctuations.

According to Wagner and Schäfer, the main problem associated with a financial transactions tax is that it can only function truly effectively if the levy is applied globally, in all stock markets of the world. It would also be effective in the European Union, they point out, conceding that if the tax was only introduced at eurozone level, and not applied in London, it would invariably result in flight away from the continent to the British Isles.

Consequently, the experts suggest that the tax could be applied to transactions in a country in which the counterparty has its headquarters as a counter measure, arguing that a bank or an insurance company would not in those circumstances straight away elect to relocate its headquarters to the UK.

But of course all such arguments are based on the assumption that the UK (not to mention other member states) will allow such legislation in the first place. Tax matters still require unanimity among member states, which seems inconceivable on such a subject.

TAGS: tax | economics | speculation | insurance | Germany | trade

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