New Bank Taxes: Why, and What Will be the Effect?

This paper analyses several options for the introduction of new taxes on the financial sector. It sets out possible objectives for such taxes, and in particular analyses the Financial Activities Tax (FAT) and the Financial Services Contribution (FSC). It compares the properties of the various forms of the FAT in terms of the revenue-raising potential while minimising distortions. The FSC may instead be seen as a mechanism to correct negative externalities created by the financial sector. To analyse this, the paper considers the origins of the recent financial crisis, and then considers the likely effects of the introduction of the FSC alongside existing regulations