This is the protocol for a systematic review of the Tobin tax. Evidence on four key questions will be reviewed:
- What is the impact of financial transaction taxes on volatility?
The results arising from the main theoretical models that have been developed will be reviewed, as well as the findings from computational simulations. The findings from the empirical literature associated with similar kinds of transaction costs and taxes will be described.
- Is a Financial Transaction Tax feasible?
A key concern running through the debate is whether it is actually feasible to implement such taxes in a way that would prevent significant avoidance. Three key questions arise here. First, what instrument should be taxed (and would market actors simply be able to substitute non-taxed instruments for taxed ones to avoid the tax). Second, at what point in the payment system (i.e. trading, clearing or settlement) and on what resource (e.g. registration, brokerage) should be tax be imposed? Third, what should the scope of the tax be? i.e. should it cover domestic assets or also foreign assets; domestic market actors or also foreign actors; transactions taking place in the domestic market or also those taking place abroad? Related to this, is the issue of whether market actors can circumvent the tax by migrating their business, or at least their trades, to untaxed centres, and, whether it would therefore be necessary to get agreement among all, or a large number of key countries for the tax to be effective.
- How much money would a FTT collect?
The answer to this question is clearly determined by the answers to the feasibility questions above. The large range of estimates of the revenue that would be collected in the literature will be outlined and an attempt made to explain how the figures produced depend on the coverage of instruments, actors and countries and the rates applied. The existing estimates of the elasticity of trade volume with respect to the tax and the effect that this has on the revenue figures obtained will be examined. Finally, a meta-analysis of the revenue collection potential using the median estimates from the literature will be attempted.
- What would be the incidence of the Tobin Tax?
Unfortunately, the analytical and empirical literature on the incidence of a Tobin Tax is rather sparse. Nonetheless, the evidence about the incidence of other taxes will be examined and used to assess the merits of the various positions taken and to come to a reasoned judgment about the likely incidence of the tax.
Institute of Development Studies, University of Sussex, Brighton, UK, 11 pp.