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

The ongoing debate on the Financial Transaction Tax (FTT) has frequently been characterized by arguments borne of political convenience, self-interest or uninformed beliefs. The evidence presented by the EU Commission in support of its proposals 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 its proposals for an FTT. The Impact Assessment published in 2011 alone was made up of 19 volumes. This chapter thus joins the debate by simply asking whether this evidence 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? 

By way of background, it should be remembered that in October 2010 the Commission considered the introduction of an FTT and a Financial Activities Tax (FAT) in a preliminary examination and concluded that “there is greater potential for a Financial Activities Tax at EU-level”. It then launched a comprehensive Impact Assessment (2011 IA) into both taxes, the results of which were published together with the Proposal of September 28, 2011 (2011 Proposal). The 2011 Proposal explains that, after analysing the FTT and the FAT and various design features, the 2011 IA “concluded that an FTT was the preferred option.” This statement will surprise attentive readers of the 2011 IA since the analysis contained therein does not obviously lead to this conclusion. In fact, the results of the 2011 IA do not always support and indeed partly undermine claims made in the 2011 Proposal as well as in the Proposal of February 14, 2013 (2013 Proposal). Overall, there is a discrepancy between the 2011 IA and the Proposals, the former recognising the limitations of its analysis and the many drawbacks of the FTT and the latter adopting a more enthusiastic approach which often overlooks the issues highlighted in the IA.

Further evidence was provided by the Commission in a series of “Technical Fiches” published in spring 2012 and in the Impact Assessment (2013 IA) issued concurrently with the 2013 Proposal. However, the Commission’s main case for an FTT was made in the 2011 IA and the two later documents merely build on it. The Technical Fiches briefly address some of the concerns raised in relation to the 2011 Proposal, and the 2013 IA returns to some of these concerns but also seeks to address the issues arising from the shift to an enhanced cooperation procedure. One notes a qualitative difference in the analysis provided in the 2011 and 2013 IAs. The analysis in the former appears to be more balanced and scientific. 

The central conclusion of this chapter 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.  

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

To support its proposals for a Financial Transaction Tax (FTT) in the EU, the EU Commission published an Impact Assessment in 2011 that ran to 19 volumes. This research project sifts through this evidence to discover whether this evidence persuasively 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? Our 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. CBT Working Paper 15/15