Financial Transaction Tax: Small is Beautiful

The case for taxing financial transactions merely to raise more revenues from the financial sector is not particularly strong. Better alternatives to tax the financial sector are likely to be available. However, a tax on financial transactions could be justified in order to limit socially undesirable transactions when more direct means of doing so are unavailable for political or practical reasons. Some financial transactions are indeed likely to do more harm than good, especially when they contribute to the systemic risk of the financial system. However, such a financial transaction tax should be very small, much smaller than the negative externalities in question, because it is a blunt instrument that also drives out socially useful transactions. There is a case for taxing over-the-counter derivative transactions at a somewhat higher rate than exchange-based derivative transactions. More targeted remedies to drive out socially undesirable transactions should be sought in parallel, which would allow, after their implementation, to reduce or even phase out financialtransaction taxes

Brexit: Be Careful What You Wish For?

In this paper, I focus on the British future from Brexit. The institutional form this will take is not yet fixed. However, one can consider likely outcomes based on dominant economic frameworks. From this perspective, it seems unlikely that Brexit will address the actual grievances that resulted in Brexit. These transcend European Union membership

Recycling bins, garbage cans or think tanks? Three myths regarding policy analysis institutes

The phrase 'think tank' has become ubiquitous – overworked and underspecified – in the political lexicon. It is entrenched in scholarly discussions of public policy as well as in the 'policy wonk' of journalists, lobbyists and spin-doctors. This does not mean that there is an agreed definition of think tank or consensual understanding of their roles and functions. Nevertheless, the majority of organizations with this label undertake policy research of some kind. The idea of think tanks as a research communication 'bridge' presupposes that there are discernible boundaries between (social) science and policy. This paper will investigate some of these boundaries. The frontiers are not only organizational and legal; they also exist in how the 'public interest' is conceived by these bodies and their financiers. Moreover, the social interactions and exchanges involved in 'bridging', themselves muddy the conception of 'boundary', allowing for analysis to go beyond the dualism imposed in seeing science on one side of the bridge, and the state on the other, to address the complex relations between experts and public policy

The Critics of Modern Money Theory (MMT) are Right

Eric Tymoigne and Randall Wray's (T&W, 2013) defense of MMT leaves the MMT emperor even more naked than before (excuse the Yogi Berra-ism). The criticism of MMT is not that it has produced nothing new. The criticism is that MMT is a mix of old and new, the old is correct and well understood, while the new is substantially wrong. Among many failings, T&W fail to provide an explanation of how MMT generates full employment with price stability; lack a credible theory of inflation; and fail to justify the claim that the natural rate of interest is zero. MMT currently has appeal because it is a policy polemic for depressed times. That makes for good politics but, unfortunately, MMT's policy claims are based on unsubstantiated economics

Securitization and financialization

Securitization and financialization are the main causes of the financial crisis. These two concepts explain not only Minsky’s financial instability hypothesis but also the off-balance-sheet operations represented by erivative products, which are closely related to mortgage loans. Financial intermediaries in need of liquidity did everything in their power so that the securitization of assets could have a life of its own in financial operations. This is a process that is endogenous to the development of financialization. Because said process was a violation of the monetary economy, it was necessary for central banks to intervene as “lenders of last resort” as well as to nationalize and restructure all the financial intermediaries

The Rise and Fall of Export-Led Growth

This paper traces the rise of export-led growth as a development paradigm and argues that it is exhausted owing to changed conditions in emerging market (EM) and developed economies. The global economy needs a recalibration that facilitates a new paradigm of domestic demand-led growth. Globalization has so diversified global economic activity that no country or region can act as the lone locomotive of global growth. Political reasoning suggests that EM countries are not likely to abandon export-led growth, nor will the international community implement the international arrangements needed for successful domestic demand-led growth. Consequently, the global economy likely faces asymmetric stagnation

Portfolio Choice and Transactions Taxes

In a simple portfolio choice model of two assets a foreign exchange transactions tax is implemented. We show that the graph in the mu-sigma[square] range is still a parabola and delineate its characteristics for altering tax rates. We presumed a risk avers investor seeking to minimize investment risks by international diversification of two uncorrelated assets. The main finding is that setting up a portfolio under the new tax condition leads to a higher transaction volume on international financial markets. In contrast, the transactions tax has got a stabilizing character when adjusting the portfolio to increased foreign investment risks

The Crisis of Finance-Dominated Capitalism in the Euro Area, Deficiencies in the Economic Policy Architecture, and Deflationary Stagnation Policies

* For a more detailed elaboration on the macroeconomic theory of finance-dominated capitalism, see the respective chapters in my book The Macroeconomics of Finance-dominated Capitalism – and Its Crisis (Hein 2012a). The present paper is based on this theory, and it extends and updates the analysis of the euro crisis I have presented in Hein (2012b). I would like to thank Achim Truger for his helpful comments and Matthias Mundt for his valuable research assistance. The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad