Summary

This interest coincides with a search for innovative sources of financing to meet development goals and fund global public goods. So why not tax global public bads to fund public goods? Taxing public bads would yield a double dividend. In the first place, it would generate income that could be used to achieve development goals and mitigate climate change. But the added benefit is that it would stabilize financial markets.

About the author

Paul Bernd Spahn

Paul Bernd Spahn is emeritus professor of public finance and was the founding executive director of the House of Finance, both at Goethe University in Frankfurt am Main, Germany.

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Stephany Griffith-Jones

By Stephany Griffith-Jones, financial markets program director of the Initiative for Policy Dialogue at Columbia University, USA.

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Special Report: Taxing global public bads

In this special report, Paul Bernd Spahn and Stephany Griffith-Jones explore the ins and outs of a financial transaction tax. They address its pros and cons and ask who would manage the influx of money from a financial transaction tax? One idea, according to Spahn, is to establish a supranational ‘tax agency’, one that could coordinate national tax policies and collective enforcement at a global level.

What should be taxed and at what rate? Griffith-Jones encourages a currency transaction tax. It would not be difficult to implement because the infrastructure is already in place. And a levy of just 0.005% on the four major currencies could potentially raise over €20 billion. Given the fierce resistance to the idea in the past, governments could be persuaded more easily if a currency tax were given a test run, for a period of five years, for example.

What remains to be seen is whether the expressions of support for a financial transaction tax reflect real political commitment or not. Recent financial regulatory reforms – especially in the United States, but also in Europe – are grounds for optimism in any case. They suggest that governments are willing to look beyond their own back gardens and consider acting for the common good.