4 Sep 2012

The IMF on Taxing Finance

Following the amazing news that two IMF economists fully back the original Chicago Plan for full reserve banking, I'm impressed to find another IMF report showing that there seem to be people working there who are prepared to rock the boat.

There's a paper that has just come out called "Taxing Finance", written by Geoff Gottlieb who is an economist, and two IMF staff members - Gregorio Impavido and Anna Ivanova. You can download a pdf version of the document here.

They start by stating that during the 2007-8 financial crisis "governments in  North America and  Europe spent an average of 3 to 5 percent  of GDP to support"... "to stave off a systemwide financial collapse". And they go on to discuss four different tax instruments that are currently being used to recover these sums.
  • A  financial stability contribution which would be a simple levey on a financial institutions balance sheet
  • A financial transaction tax (FTT) that can be levied on the value of specific financial transactions such as equity trading
  • A financial activity tax that can be applied to the sum of an institution's profits and remuneration
  • A reform of corporate income tax to reduce leverage in the financial sector
They provide a graph of  the amount of money that is curently being raised using these methods in western Europe which I show here.

Overall all, they note that these various devices are currently only recovering about 0.2% of GDP per year on average, "suggesting that it would take 15 to 25 years to generate resources equivalanet to the direct costs of the current crisis". 

My reading of the article suggests that the IMF thinks that at lot more needs to be done to redress the balance. I couldn't agree more.


  1. Their ideas are far too complicated and leave too much room for avoidance.

    Your very simple plan is definitively better as it would require very
    little law making, could be implemented overnight for the whole Eurozone
    and the proceeds could immediately be used to lower the percentages of
    all other taxes until they have been substituted completely.

    In der Beschränkung zeigt sich der Meister.

  2. Thanks Octogon. I agree that the IMF mechanisms are really far too complicated. A simple FTT applied universally could be imposed very easily and would be fair, simple to implement, painless (for every one except high frequency traders), and virtually impossible to avoid.