When Financial Markets Work Too Well: A Cautious Case For a Securities Transactions Tax

Summers L, 1989

In a seminal paper (1989) Larry Summers, leading US economist and columnist for the Financial Times, examines the desirability and feasibility of implementing a Financial Transaction Tax (FTT) in the US.

The proposed tax, Securities Transfer Excise Tax (STET), would have the beneficial effects of curbing instability associated with short-term speculation, reduce the diversion of resources into the financial sector of the economy and help raise new revenue. Furthermore, Summers argues that the efficiency benefits derived from curbing speculation are likely to exceed any costs of reduced liquidity or increased costs of capital that come from taxing financial transactions more heavily. The examples of Japan and the United Kingdom suggest that a STET is administratively feasible and can be implemented without crippling the competitiveness of U.S. financial markets. A STET at a .5% rate could raise revenues of at least $10 billion annually.

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