The impact of the EU financial transactions tax on the real economy – analysis of the impact on corporate and sovereign bonds

Sector: Finance | Financial markets and Institutions
Published: April, 2013
Document type: Staff publication 
Tagged: EC/EEA qualitative analysis quantitative analysis UK

This Financial services and capital markets briefs highlights the significance of the proposed EU financial transactions tax (FTT) to the real economy. The FTT rates are small – 0.1% on equities and bonds and 0.01% on derivatives. However, the associated total tax burden may be significant through a number‐of‐transactions effect (as securities are traded frequently) and a cascade  effect (as each trade between savers involves a number of intermediate transactions). As such, the FTT will increase the cost of funds for the economy and, as result, reduce investment by businesses and households, and GDP in turn; and require higher taxes and/or lower public spending.