Evidence-based policy making? The Commission’s Proposal for an FTT

The controversial proposal by the European Commission for the introduction of a Financial Transaction Tax (FTT) has sparked intense debate with strong views expressed on all sides.

Unfortunately, this debate has frequently been characterised by arguments borne of political convenience, self-interest or uninformed beliefs. The evidence presented by the Commission in support of its proposal for an FTT provides a more concrete and fruitful route through the debate. The Commission is committed to evidence-based policy making, and it expended considerable energy in producing a vast amount of evidence to back both its original proposal of 2011 for the adoption of an FTT by all Member States, and its second proposal for the adoption of an FTT by a subset of Member States through the enhanced cooperation procedure.

Building on previous research by the authors, this paper joins the debate by simply asking whether the extensive evidence presented by the Commission in the past three years in support of its proposal is persuasive and makes the case for an FTT. It does so within the framework of a three-step policy evaluation of the proposal. First, what are the proposal’s objectives? Second, are these objectives justified? Third, is the proposed tax the instrument which is best suited to achieve these objectives?

The central conclusion of this paper is that the Commission’s evidence is not persuasive and does not make the case for an FTT. Whilst some of the objectives pursued by the proposals are reasonable, others are questionable. More importantly, the Commission’s evidence does not support the choice of the FTT as the instrument which is best suited to achieve these objectives. More targeted and more efficient instruments should and could be used to achieve these objectives.

Giorgia Maffini and John Vella, Issues and challenges concerning the introduction of a financial transaction tax in the European Union, IBFD, forthcoming.