1 Transactions Taxes and Foreign Exchange : Good Theory , Weak

2 I. Introduction The papers prepared for this volume focus on the important elements of the debate over transactions taxes for foreign exchange and international capital markets. The value added of this paper is intended to lie in drawing out the implications of the arguments for policy. The case for transactions taxes rests on judgments about a sequence of conditions, each of which is necessary in order to support the case for government intervention in these markets. The evidence reviewed below suggests that the joint probability that these conditions are met is very low. It follows that a new initiative to distort international capital markets with such taxes would be an unusually bad policy choice.