Working Paper
The Revenue and Double Dividend Potential of Taxes on International Private Capital Flows and Securities Transactions

This paper explores two proposals to tax financial flows in developing economies—the package of policies implemented to various degrees by Chile and Colombia during the 1990s, widely referred to today as the Chilean model—and securities transactions taxes (STTs). I find that each provides a viable mechanism to raise revenue in some developing countries. Both can be introduced unilaterally (with the prospect of multilateral coordination in the future); both are progressive in their incidence, and in the case of the STT, represents an administratively manageable form of revenue collection. I also find that each entails double dividends that manifest in greater domestic and international macroeconomic stability. I also find, however, that the revenue-creation potential of both of these policy tools is limited for most developing countries. Indeed, in the case of the STT, I find that ten developing countries account for 94 per cent of all securities transactions and STT revenues. In addition, I find that this revenue is unstable, owing to the dramatic fluctuations that occur in securities trading volume in developing countries. These findings suggest the need to augment the national policy tools considered in this paper with other national and global strategies to raise revenues that can be used for the developmental purposes identified in the Millennium Development Goals.