* UK think tank says Merkel and Sarkozy should drop tax plan
* No evidence 'Robin Hood Tax' would bring stability -
* Tax "would dent share prices, raise govt borrowing costs"
By Peter Griffiths
LONDON, Aug 18 France and Germany should abandon
"economically illiterate" proposals for a tax on financial
transactions because a tax could make markets more volatile
rather than bring stability, a free market think tank said on
The London-based Adam Smith Institute said numerous academic
studies suggest such a tax would lead to more erratic movements
in equity and foreign exchange markets, falling share prices and
French President Nicolas Sarkozy and German Chancellor
Angela Merkel announced the tax proposal on Tuesday as part of a
range of measures aimed at restoring confidence in the euro
Supporters say it would make markets more stable by
deterring short-term speculation and would give countries a
degree of protection against exchange rate pressures. Others say
it would provide governments with much-needed money for areas
such as health and education.
However, the think tank's report said it could raise the
cost of government borrowing as investors seek to make up the
money they have lost in paying the transaction tax.
A charge on financial transactions is often referred to as
the Tobin Tax after the American economist James Tobin who put
forward the idea in the 1970s. Campaigners angry with the
financial services industry and its role in the global downturn
call it a "Robin Hood tax", a reference to the legendary English
outlaw who robbed from the rich and gave to the poor.
"When something seems too good to be true, it usually is.
The 'Robin Hood Tax' is as vague as it is economically
illiterate," said Sam Bowman, the institute's head of research.
"We can't tax our way out of this economic depression."
Describing the tax proposal as "politically motivated but
economically flawed", the report said the idea might appeal to
voters angry with the financial sector, but it could end up
making everyone poorer.
It would be "economic suicide" for Britain or any single
country to adopt the tax unilaterally, the report added. A
Swedish tax on some financial transactions raised only 1/30th of
the amount predicted and pushed financial activity overseas, the
Anything less than a global deal would see traders move
their money to countries with lower taxes and less onerous
regulation, distorting world markets, it said.
"When Sweden tried a Tobin tax it was a colossal failure -
why does anybody pretend this time would be different?" Bowman
* For the full report, click on:
(Editing by Susan Fenton)