Financial transaction taxes do little to reduce volatility in financial markets and face a number of challenges in their implementation, a report prepared for the Bank of Canada’s quarterly review suggests.

The article, included in the central bank’s fall review released Thursday, says little evidence supports the notion that such taxes would reduce speculative trading or volatility, but rather would increase volatility and decrease trading volume.

“Furthermore, a number of challenges associated with the design and effectiveness of an FTT could limit the revenues the FTTs are intended to raise,” the report said.

“For these reasons, countries considering the imposition of FTTs should be aware of their negative consequences and the challenges involved in implementation.”

The idea of financial transaction taxes gained popularity in the wake of the recent financial crisis.

In Canada, the Harper government has argued such a tax would unfairly penalize banks here at home even though they were not part of the problem that led to the crisis.

The new report suggests it would be difficult to design a fair and efficient tax that would minimize circumvention.

What should be taxed, how much should it be, when should it be collected and where should it apply, all complicate matters.

“The revenue collected through an FTT might therefore be considerably less than simple estimates would suggest, owing to substitution and migration,” the report said.

Last year, the European Union proposed an EU-wide financial transaction tax on the exchange of shares, bonds and derivative contracts.

Eleven countries _ Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain _ agreed in October to co-ordinate the implementation of a tax, but details still need to be worked out.

The EU Commission has suggested that trades in bonds and shares be taxed at 0.1% and trades in derivatives be taxed at 0.01%.

“While there has been significant resistance from some EU member states, FTTs are popular and have enthusiastic supporters,” the report said.

France introduced a 0.2% transaction tax that took effect on Aug. 1.