The Swedish Tobin Tax

April 17th, 2013 at 12:00 pm by David Farrar

Magnus Wilberg writes in the Financial Times:

Europe is making a mistake. In February, the European Commission published a proposal for a financial transaction tax – also called a Tobin or “Robin Hood” tax – in the EU. Eleven states have been granted the right to impose a minimum 0.1 per cent tax on equity and debt transactions and a minimum 0.01 per cent charge on derivatives transactions. If the experience of ’s use of such a tax is anything to go by, this move is extremely unwise.

Why do some people advocate for a ?

One aim of the proposed tax is to improve the efficiency of financial markets by reducing speculation. Another is to generate tax revenues. Those were also the reasons why Sweden introduced a transaction tax in 1984.

If an FTT actually worked, and it was used to lower income tax rates, then it could be worth considering as part of a policy of broad base and low rates. But do they work?

 

Initially, the tax rate was 0.5 per cent in connection with the purchase and sale of shares. In mid-1986, the rate was doubled and the tax base was broadened to cover share options and convertibles. The trading volume on the Stockholm stock exchange changed dramatically when the tax was increased. Average turnover fell 30 per cent during the second half of 1986 and throughout 1987. The turnover in the 11 most traded shares fell 60 per cent. It seems unlikely that this sharp decrease reflected a decline only in speculative trading.

Later, in 1989, the tax base was broadened to include bonds. This, in turn, led to an 85 per cent reduction in bond-trading volume and a 98 per cent reduction of trading volume in bond derivatives. The increase in tax revenues resulting from the broadening was less than 5 per cent of what had been expected.

By 1990, shortly after the last vestiges of the currency controls were abolished in Sweden, more than 50 per cent of the trading in Swedish shares had moved to London. Conversely, once the tax was abolished in December 1991, trading on the Stockholm stock exchange recovered.

We live in an increasingly mobile and borderless world. Companies can decide where to locate, where to pay tax, and where to do financial transactions. The best way to have a good tax base is to have low rates.

This conclusion is reinforced by studies on the effects of the Swedish tax, which suggest that it reduced market liquidity but not volatility. Since increases in speculative trading tend to be associated with more volatility, this also suggests that the tax had little substantial effect on speculative trading.

So it didn’t even achieve its main aim.

Tags: ,

9 Responses to “The Swedish Tobin Tax”

  1. Tom Jackson (2,262 comments) says:

    We live in an increasingly mobile and borderless world. Companies can decide where to locate, where to pay tax, and where to do financial transactions. The best way to have a good tax base is to have low rates.

    Get rid of GST then. All it does is make a company’s goods more expensive to NZers.

    Vote: Thumb up 1 Thumb down 1 You need to be logged in to vote
  2. virtualmark (1,423 comments) says:

    But the Swedish experience still won’t stop the Greens from pressing for a Tobin tax if they’re in government after the next election …

    Vote: Thumb up 3 Thumb down 0 You need to be logged in to vote
  3. Nick K (919 comments) says:

    Companies can decide where to locate, where to pay tax, and where to do financial transactions. The best way to have a good tax base is to have low rates.

    Not according to Cunliffe. With him, the best thing is to tax revenue in the country it is earned.

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  4. Tom Jackson (2,262 comments) says:

    Do the Greens want an FTT or the original Tobin Tax?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. labrator (1,691 comments) says:

    It’s also worth noting that Eastern European countries that have gone broadbase flat-tax have reduced the tax-rate because they took more in tax than they expected. Funny how when people think things are fair they don’t go to any lengths to avoid it.

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  6. lastmanstanding (1,154 comments) says:

    Governments never reduce taxes in real total terms they just find new ways of gouging the citizens. Take GST. Introduced in 1986 at 10%. Now 50% higher.

    ALL governments have a tax a spend mentality the only difference is how much and in that regard the Nats are at the lower end IMHO but still looking for ways and means to take more and more.

    As Bob Jones says all tax is theft by stealth.

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  7. OneTrack (1,977 comments) says:

    “Do the Greens want an FTT or the original Tobin Tax?”

    Probably both :-)

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  8. SPC (4,675 comments) says:

    Two issues – the impact of FTT when applied in one state alone in isolation from other markets and the relevance of the profile of the nation and why they are doing it.

    What distinguishes us from Sweden is time zone … the 24 hour movement of money … our higher OCR than applies abroad …

    Vote: Thumb up 0 Thumb down 1 You need to be logged in to vote
  9. wiseowl (577 comments) says:

    Forget FTT.
    Start learning about BITCOIN.
    The new way ahead.

    Vote: Thumb up 1 Thumb down 1 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.