A Robin Hood is superficially attractive because it seems to offer:
- higher taxes on the wealthy
- a curb on speculation and market volatility
- more money for aid and global public goods.
But as I explained in February the Robin Hood tax isn’t a very good way to achieve any of these perfectly reasonable objectives. They would be much better pursued separately.
This analysis was confirmed by this new research published today by Neil McCulloch at the Institute for Development Studies. He finds that:
- a significant proportion of a foreign exchange tax would be passed on to consumers (so it would not be not a tax on the wealthy);
- most empirical evidence shows that higher transactions costs are associated with more, rather than less, volatility.
He also finds that a financial transaction tax is feasible and that a tax on foreign exchange transactions could raise £7.7 billion in the UK, or $26 billion if implemented worldwide.
Unexpectedly, he then concludes that the UK Government should implement a currency transaction tax.
If the Robin Hood tax is not a tax predominantly borne by the wealthy, nor will it reduce market volatility, what’s the case for it?
If we want to increase our spending on aid and global public goods – which I support – we should do so by way of making the case in the public spending process. Development activists should not try to bypass the systems of democratic control of spending priorities, nor should they advocate taxes which do not make good tax policy on either distributional or microeconomic grounds.