A debate has raged during the last week over a ‘tiny tax on bankers to tackle poverty.’ Surely who could object to such a thing?
Well, economists have been quick to point out that the tax isn’t really a tax on bankers, nor is it tiny. Oh, and it might not help the poor as much as advocates claim.
Tim Harford and Owen Barder both point out that while the tax rate may be tiny (0.05%), the size of tax base (i.e. financial transactions) is huge and it is the consumer of financial services who will bear the tax burden (billions).
OXFAM’s Duncan Green disagrees, saying ‘banks could contain a large part of the initial burden without passing it onto consumer.’ (It would be awfully nice if banks did bear the burden, but I’m not convinced they will.)
How about the second part, tackling poverty?
Most of the last week’s blogs – including Owen and Duncan’s – agree that more development assistance is needed for developing countries, but disagree on how it should be funded.
Here are there are two main arguments against using the financial transactions tax for this purpose.
- The first is that there are more efficient and progressive ways to raise the money (and Owen gives a list of options.)
- The second is the case for aid should tackled head on by demonstrating results, rather than side-stepping the skeptics through a dedicated tax.
And Owen is probably right to say that the tax could also be counter-productive.
Introducing a new tax dedicated to what we think are good causes may give aid a temporary boost, but if people are not convinced [on aid generally] they will quickly demand [aid cuts] elsewhere.
Duncan Green responds that while demanding ‘good aid‘ is a good thing, doing so to the exclusion of the proposed financial transaction tax is a ‘little extreme/purist’ and misses an opportunity.
While the conclusions are not yet clear, this is a good debate and provides impetus to the case for more and better aid.
