Thomas Brand

Title: '"Throw Sand in the Wheels of European Finance". The European Union Financial Transaction Tax and the Law of Unintended Consequences'

Supervisor: Professor Dr. Jan Allen Kregel

Opponent: Dr. Ringa Raudla, Senior Research Fellow

Defense: 9 September 2013


Abstract: The main purpose of this thesis is to critically examine and evaluate upcoming European Union financial transaction tax (‘EU FTT’) proposal of the European Commission. The EU FTT will be introduced in eleven European Union member states, according to latest available information, in midst 2014. Most of the public discussion about the EU FTT is between those who believe that the tax is justified by its noble intentions, reducing the level of conversation. This MA thesis consists of a general introduction. The theoretical and conceptual framework encompasses many kinds of possible bank levy regimes. The thesis includes a critical evaluation of possible bank taxes and levies with a specific focus on how these taxes affect economic growth, systemic risk, the cost of capital and who will finally pay the tax in question. The thesis presents evidence in favor and against implementation of the EU FTT, and analyzed policy goals and objectives of the proposal and gives some information on the rules and proposed tax rates of the proposal by the European Commission. The thesis argues that the fundamental rationale of the EU FTT might be slightly weak at the moment because there is not enough empirical evidence to back it up. The thesis emphasizes that the EU FTT could possibly reduce volatility, systemic risk and unwanted speculative trading in the long-term although it is true that trading activity could decrease substantially because an FTT forces market actors to consider their trades much more deeply before engaging in them. It further argues that the EU FTT can help the European Union to cope with the current and future economic crisis. In sum, this thesis contributes novel knowledge that particularly enriched the understanding and separating of short-term and long-term effects of the EU FTT when discussing it and arguing for or against the proposal. This thesis also proposes some possible future research ideas in the area of bank taxation and global financial taxes.

Keywords: FTT, financial transaction tax, FAT, financial activities tax, European Union, bank regulation, Tobin tax, bank tax, European Commission, financial crisis, financial markets, taxation, financial markets, banking, law and economics, political economics, systemic risk, volatility.