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Global Tax On Financial Transactions Is a Priority for Stability and Development

Latin America and the Caribbean could receive up to 1.2% of regional GDP by implementing such a tax.

25 August 2011 | Press Release

(24 August 2011) Today, the Executive Secretary of ECLAC, Alicia Bárcena, stated that the priority objective of implementing a tax on short-term financial transactions should be to raise resources for financing development, including the supply of global public goods such as the fight against climate change.

 

Ms. Bárcena indicated that this tax must be seen as an instrument which forms part of a deep reform to the international financial system and its regulatory institutions, with the ability to increase spaces for the policy on development.

Last week, Germany and France put forward the need to introduce a tax on financial transactions in Europe to strengthen the integration and coordination of economic policies in the Eurozone, which is going through its greatest crisis since the implementation of the euro, among other measures.

The Economic Commission for Latin America and the Caribbean stated that this is not a new idea, but as a consequence of the global financial crisis this type of proposal has regained importance both within and outside of Europe.

Some suggested introducing a financial transaction tax (FTT) at a global level on the negotiation of stocks and debentures or bonds, and cash and derivative operations, among others.

Others suggested a currency transaction tax (CTT) or Tobin tax.

The financial transaction tax has international support, as evidenced by a letter requesting its implementation which was sent at the start of April 2011 by thousands of economists from 53 countries to the G-20 group, a forum which brings together the great powers and some emerging economies.

The general opinion is that both FTT and CTT will have potential stabilizing effects by penalizing speculation and very short-term financial transactions. They will also enable important tax collections, given that the base of taxes would be very wide and the rate much lower (the suggested interval is generally from 0.005% to 0.05%).

Recent estimates show that in the case of FTT, a rate of 0.05% implemented at a global level has the potential to raise 661 billion dollars, which is equivalent to 1.21% of global GDP.

Likewise, the rate of 0.005% for CTT on monetary transactions in cash and derivative operations with the four main currencies (the dollar, euro, pound and yen) could raise 33.4 billion dollars per year.

From an ECLAC perspective, the German and French joint proposal is a step in the right direction. However, its sphere of application should be on a global scale.

Resources raised from this type of tax could be important for Latin America and the Caribbean. When considering the implementation of a global FTT and that the funding raised is divided in the same way as the official development assistance (ODA), of which Latin America and the Caribbean currently receive 7% of the total, the region could receive up to 46,000 dollars per year from this tax, which is equivalent to 1.2% of the regional GDP.

 

According to ECLAC, use of this tax instrument would be a step forward in the global effort to decrease financial volatility and maintain stability.

Any queries should be addressed to the ECLAC Public Information and Web Services Section. E-mail: dpisantiago@cepal.org; Telephone: (56 2) 210 2040.

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