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Joint Online Seminar: Taxing Financial Transactions


20Oct 2020


  • ZOOM Webinar
  • Prof. Jean-Charles ROCHET, University of Geneva and MIT

We examine the capacity of a Financial Transaction Tax (FTT) to generate substantial fiscal revenue without provoking too many distortions. In a model where investors’ wealth is imperfectly observable, we show that a FTT is always part of the optimal tax mix under one condition: it must be that richer people are more inclined to trade on financial markets than poorer people. Under this assumption, the financial transactions volume of an individual investor gives a second signal (after capital income) about unobserved wealth. We show that both signals have to be used in the optimal tax mix. If the government could commit not to increase the total tax burden on investors, investors would even benefit from the introduction of a FTT, if it is compensated by an appropriate decrease in the tax on capital income. However by extending the model to include workers, we show that even if a FTT always increases aggregate welfare and workers’ utilities, it may be opposed by investors.


For details please refer to here.


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