CAMBRIDGE European leaders are seriously considering a Tobin tax, which would put a small levy on financial transactions, thereby dampening trading.

The emotional appeal of a tax on all financial transactions is undeniable.

With this battle won, the next worthy goal is a global financial transaction tax.

Existing proposals include a Robin Hood tax on financial transactions, a share of the profits from the EU s carbon emissions trading scheme, or a larger take from value added tax receipts.

CAMBRIDGE European leaders are seriously considering a Tobin tax, which would put a small levy on financial transactions, thereby dampening trading. But will the tax do as much as its proponents hope?

As a result, the ultimate revenue gains are likely to prove disappointing, as Sweden discovered when it attempted to tax financial transactions two decades ago.

The third aim could be achieved country by country, but it is certainly arguable that an across the board banking levy, or a Europe wide financial transaction tax, would eliminate competitive distortions.

An FTT is most suitable for such a venture for two reasons.

Recently, the IMF proposed a new global tax on financial institutions loosely in proportion to their size, as well as a tax on banks profits and bonuses.

Support for a global financial transaction tax is growing.

Revenue estimates for a small tax on international currency transactions run into hundreds of billions of dollars per year.

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Consider, for example, a tax of 0.25 applied to all cross border financial transactions.

For example, a so called Tobin tax on financial transactions is a frequently proposed solution, but it is not a policy solution that could be implemented by corporate law judges.

As a bonus, an FTT will curb destabilizing speculation in financial markets.

A leading policymaker in the Anglo American empire of finance actually came out in support of a Tobin tax a global tax on financial transactions.

A tax on stock transactions encourages longer term holdings.

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More broadly, FTTs violate the general public finance principle that it is inefficient to tax intermediate factors of production, particularly ones that are highly mobile and fluid in their response.

Another possibility is that the Europeans concluded that an FTT s political advantages outweigh its economic flaws.

But the FTT, despite its noble intellectual lineage, is no solution to Europe s problems or to the world s.

Turner, voicing his concerns about the size of the financial sector and its frequently obscene levels of compensation, said he thought a global tax on financial transactions might help curb both.

It is true that Latin American governments, particularly the Brazilian authorities, succeeded in raising more revenue from taxes on bank withdrawals (a crude version of an FTT) than most policy analysts thought possible.

Of course, taxation of financial firms profits and bonuses should be made more similar to that of other economic activities.

After all, there certainly is a case to be made that an FTT has so much gut level popular appeal that politically powerful financial interests could not block it.

In contrast, the Center for American Progress report devoted very little space to financial sector reform in the authors view, such issues hardly seem to be a high priority. Van Hollen does have some concerns and proposes a financial transaction tax to reduce speculative activities.

In fact, it is worse than a straightforward carbon tax.

The European Union supports the initiative of a voluntary solidarity tax on air tickets.

Developing nations should also push for a Tobin tax a tax on global foreign currency transactions.

It is time for an international tax on bank profits perhaps implemented as a levy on international financial transactions which would raise tens of billions of dollars each year.

True, great thinkers like John Maynard Keynes and the late Nobel laureate James Tobin floated various ideas for taxing financial transactions as a way to reduce economic volatility.

Financial transactions

In plain English, an occupation tax is needed.

Moreover, a high corporate tax rate is an ineffective and costly tool for producing revenues, owing to innovative financial transactions and legal tax avoidance mechanisms.

The implication is that we should punish offenders rather than restrict gun circulation. Similarly, policymakers should ensure that financial market participants fully internalize the risks that they assume, rather than tax or restrict certain types of transactions.

Governments at the epicenter of the recent financial crisis, especially the United States and the United Kingdom, are downright enthusiastic, particularly about the tax on size. After all, they want to do that anyway.

But it does not help to solve major financial problems, and those that it does address (short term, overnight financing) could be dealt with more directly, with a more focused tax, better rules governing those transactions, and improved prudential regulation.

A Tobin tax would raise the cost of short term finance, some argued, somehow missing the point that this is in fact the very purpose of a Tobin tax.

The third change is a tax on the financial sector, in the form of a Financial Activities Tax on profits and remuneration at big banks that enjoy implicit government guarantees.

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Owners of coal mines and their clients are thus strongly opposed to any tax on carbon.

Unfortunately, much as FTTs are the darling of leading liberal economic commentators and Robin Hood NGOs, they are an extremely misguided approach to achieving such worthy ends.

A tax on oil, however, does not entail excess burdens. On the contrary, it implies excess benefits .

We propose an education investment bank to be established with the cooperation of the GPE and major international investment banks, capitalized in part by proceeds from a financial transaction tax (FTT), such as that proposed for the European Union.

Other policies, such as redirecting subsidies paid by rich countries to the fossil fuel industry, or levying a tax on financial transactions, could provide a further 10 billion each year.