ABSTRACT
This chapter outlines the conceptual reasoning underlying the competitive dynamics of financial markets in an open economy. It reviews how competitive forces affect both users and suppliers of financial services, as well as how they affect regulators. The chapter considers securities taxation in Europe, specifically taxation bearing directly on the investor and taxation bearing on primary- and secondary-market transactions. In the international setting, the scope for governments to collect excessive regulatory taxes is reduced because there is greater competition among national regulatory environments. If financial institutions find it in their interest to pay some regulatory tax, the economic question then concerns the sustainable magnitude of this tax. In order to partially compensate for the tax-induced regulatory drag, the Swiss National Bank has ruled that all Swiss franc denominated bond issues should be lead-managed by banks domiciled in Switzerland. Investment income taxation becomes particularly important in the light of the liberalization of European transactions in mutual funds.
