Edited by Kern Alexander and Rahul Dhumale
Kern Alexander and John Eatwell Editors’ abstract: Professors Kern Alexander and John Eatwell analyse the effectiveness and feasibility of some of the main proposals for financial taxes by examining their economic rationale and impact on financial markets. The chapter argues that financial transaction taxes, especially those applied to currency transactions and exchange-traded derivatives, could serve regulatory objectives while raising sustainable sources of revenue to assist governments in paying for the social costs of financial crises and providing global public goods. Nevertheless, financial policymakers should consider what type of financial transaction tax is most appropriate for their jurisdictions and then adopt international principles with other national authorities to govern its implementation in order to minimise arbitrage and circumvention. INTRODUCTION The recent history of the liberalised financial markets suggests that financial crises are recurring more frequently and that traditional regulatory controls have failed to control systemic risk and that financial innovation will result in further circumvention of regulatory controls, which will in turn plant the seeds for the next crisis.1 The costs of crises are rising exponentially and will impose huge economic and social costs on both developed and developing countries for generations to come. The crisis has also made it extremely difficult for developed countries to honour their pledges taken at the Gleneagles G7 Summit in 2005 to increase their financial support for global public goods and, in particular, to achieve the Millennium Development Goals (MDGs). It is imperative, therefore, that policymakers explore innovative sources of finance and, in particular, the...
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