Tricky Decision between Two Evils
Transaction Tax versus UK-Stamp Tax
Since September 2011, the European Commission proposed a transaction tax that aims to make the financial sector pay for state support and guarantees during the financial and economic crisis of 2007 until 2009. However, the United Kingdom, the Netherlands and some other European countries rejected this idea. The argument of the critics is common knowledge: such a tax can only be effective if it is introduced at an international level. Otherwise the financial transactions move to countries and financial centers without a transaction tax. In an economic sense this might be correct because capital is quite mobile. Another drawback of a transaction tax is that the customers have to pay the bill at the end and not the traders or bankers. To put it simply: the steering effect of this tax is inappropriate if implemented nationally. Nevertheless, from an economic point of view, it's important to reduce the volatility and contagious effects of high frequency trading. Thus, a transaction tax on derivatives would have at least the potential to reduce these effects a little bit. Nonetheless, to be effective it requires a European or at best an international implementation.