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Harvards Frankel Likes Taxing Trades

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by Zubin Jelveh
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Oct 09 2008 8:19pm EDT

Harvard's Frankel Likes Taxing Trades

Apologies but, just catching up to this one. I criticized Jesse Eisinger's proposal for taxing trades and the notion that such a levy would improve markets by reducing short-termism.

But now (or rather, as of Sep 30) Jesse has the backing of a heavy-weight economist: Harvard's Jeff Frankel.

Frankel does also conclude as I did that taxing trades won't improve market functioning, however, he argues that a trade tax would've made TARP more palatable:

The general historical experience seems to be that there is no discernible effect on volatility (though a couple of studies find effects on volatility, either upward  or downward).   In other words, the tax might not help the functioning of the financial markets -- the original motivation - but neither does it hurt, according to a majority of the studies.  In some cases the volume of trading within the country is affected.  But what the tax does does usually do is raise money for the Treasury.

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