Applied Economics: Effect of Financial Transaction Tax - Essay Example

The following report analyses the four data variables from selected Denmark, France, the United Kingdom, and Sweden.

            Concerning the four countries in question, it is evident that the rate of growth of the Gross domestic product varies from one country to another (The world bank, 2014). Based on the comparison among the four countries it is apparent that a high volume of Money at LCU corresponds with a low gross domestic product and a low volume of money at LCU corresponds with a high gross domestic product. Money at LCU is one of the significant economic indicators since it refers to the money that is in circulation (Econstats, 2014). In this case, financial transaction tax will have a direct impact on the money at LCU. In this case, financial transaction tax will lead to a decrease in money at LCU. Based on the relationship between money at LCU and GDP a reduction in the money at LCU will raise the rate of GDP for a given country. Consequently, this will have reduction in money at LCU will lead to a reduction in inflation since it will reduce the spending habits of residents in a country. On the other hand, an increased local currency unit volume will increase the money supply, which may lead to inflation (Eisenstein, C. 2011, 295).

            In conclusion, an analysis of the four data variables Inflation, money at its local currency unit (LCU), revenue collected from tax, and the gross domestic product outlines that financial transaction tax can have an impact on the economy of a country. Because financial transaction tax can regulate the money supply of a country, it can affect the economic activities of a country.  As a result, financial transaction tax can be used to stabilize the economic conditions of a country.