Thursday, February 11, 2010

Robin Hood Tax

A friend of mine wanted my thoughts on the Robin Hood Tax, so I thought I'd pass them along to you:

1. Though the page is vague about the issue, the tax would likely not be instituted by all countries evenly. Therefore, if this campaign has any success, you'll have some countries that incorporate it and some that don't. Financial transactions are *very* mobile-- as mobile as it gets-- and it would be very easy for those who would be taxed to simply move to a locale where the transaction would not be taxed. People want to avoid taxes and this one would be easy to avoid.

2. The tax seems to target "speculative" activity. Depending how you slice it, just about any financial transaction could be classified as speculative-- so there's an issue of exactly what you tax. Further, due to different financial instruments, you can generally replicate one financial transaction through a combination of others. So that could be another way to avoid the tax.

3. As always, there are deadweight loss issues concerning taxation, though some of the effects are described above. Though if you really want to split hairs, those effects described above are technically excess burden, not deadweight loss.

4. As always, the ability of governments to effectively use tax money to generate positive outcomes is dubious at best.

5. As always, there are political problems inherent in taxation in general.

Anything else? 2 would seem to be the short run outcome, 1 would be the long run.


Elliot said...

This looks similar to the Tobin tax. The Tobin tax is levied on transfers of one currency into another. There's a long article on Wikipedia about it, check it out if you want other problems of an international tax. Now that I look at the article, some prominent economists are saying that it would weaken our current financial crisis if it were in effect.

Elliot said...

Oh, one more thing. I like Charles Goodheart's quote in the Wikipedia article: " In late November, 2009, Economist Charles Goodhart, Professor Emeritus of Banking and Finance at LSE and developer of Goodhart's law, was scathing in his criticism of "radical and consumer groups [that] go on backing the Tobin tax idea". He argued, "Many of those who support such a tax neither know, nor care, what effects it might have on market efficiency. Besides a, generally misguided view that its imposition would fall primarily on the financial sector, rather than be passed on to its customers, the hope is that such a tax would produce lots of lovely revenue, to be spent on good deeds, such as foreign aid." [131]"

It sounds like such a GOOD idea to the person uninformed in economics that it must be bad.

Justin M Ross said...

Elliot has just convinced me that I need to revisit my public finance syllabus and add some papers on the Tobin tax to the readings.

Matt E. Ryan said...

There's a reason why the experts go here first, Justin.

Pavel Yakovlev said...

And don't forget about the economic incidence of the tax. Will it be the commonly berated 'financial speculators' who bear the burden of the "Robin Hood Tax"? I think not.