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* On December 11, 2009, the ] reported the following: "Since the Nov 7 summit of the ] Finance Ministers , the head of the ], Mr Strauss-Kahn seems to have softened his doubts, telling the ] employers' conference: "We have been asked by the ] to look into financial sector taxes . . This is an interesting issue . . We will look at it from various angles and consider all proposals."" <ref>{{cite web |url=http://www.ft.com/cms/s/0/b827b62c-e5f4-11de-b5d7-00144feab49a.html?nclick_check=1 |title= Tobin tax remains Treasury ambition|author= Tobin tax remains Treasury ambition|date= December 11, 2009|work= |publisher=] |accessdate=2009-12-29}}</ref> | * On December 11, 2009, the ] reported the following: "Since the Nov 7 summit of the ] Finance Ministers , the head of the ], Mr Strauss-Kahn seems to have softened his doubts, telling the ] employers' conference: "We have been asked by the ] to look into financial sector taxes . . This is an interesting issue . . We will look at it from various angles and consider all proposals."" <ref>{{cite web |url=http://www.ft.com/cms/s/0/b827b62c-e5f4-11de-b5d7-00144feab49a.html?nclick_check=1 |title= Tobin tax remains Treasury ambition|author= Tobin tax remains Treasury ambition|date= December 11, 2009|work= |publisher=] |accessdate=2009-12-29}}</ref> | ||
* December 13, 2009 - Volcker said he "instinctively opposed" any tax on financial transactions. "But it may be worthwhile to look into the current proposals as long as the result is not predetermined. That would at least end all this renewed talk about the idea, but overall I am skeptical about these ideas." <ref>{{cite web |url=http://www.reuters.com/article/idUSTRE5BC0MH20091213 |title= Volcker finds British bonus tax "interesting": report|author= Michael Sheilds|date= December 13, 2009|work= |publisher=]}}</ref> | |||
*On December 21, 2009, Irene Aldridge took a main street approach towards her opposition of the tax.<ref>http://advancedtrading.com/regulations/showArticle.jhtml;jsessionid=VV4CMSCWEWTQJQE1GHPSKH4ATMY32JVN?articleID=222002855&_requestid=4477</ref> | *On December 21, 2009, Irene Aldridge took a main street approach towards her opposition of the tax.<ref>http://advancedtrading.com/regulations/showArticle.jhtml;jsessionid=VV4CMSCWEWTQJQE1GHPSKH4ATMY32JVN?articleID=222002855&_requestid=4477</ref> |
Revision as of 23:42, 16 February 2010
For the more general category of "financial transaction taxes", see Financial transaction tax. For the more general category of "currency transaction taxes", see Currency transaction tax.This article is written like a personal reflection, personal essay, or argumentative essay that states a Misplaced Pages editor's personal feelings or presents an original argument about a topic. Please help improve it by rewriting it in an encyclopedic style. (January 2010) (Learn how and when to remove this message) |
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A Tobin tax, suggested by Nobel Laureate economist James Tobin, is a concept initially associated with a tax on all spot conversions of one currency into another. The tax is intended to put a penalty on short-term financial round-trip excursions into another currency. Tobin suggested his currency transaction tax in 1972 in his Janeway Lectures at Princeton, shortly after the Bretton Woods system of monetary management ended in 1971. Prior to 1971, one of the chief features of the Bretton Woods system was an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold. Then, on August 15, 1971, United States President Richard Nixon announced that the United States dollar would no longer be convertible to gold, effectively ending the system. This action created the situation whereby the United States dollar became the sole backing of currencies and a reserve currency for the member states of the Bretton Woods system, leading the system to collapse in the face of increasing financial strain in that same year. In that context, Tobin suggested a new system for international currency stability, and proposed that such a system include an international charge on foreign-exchange transactions.
In 2001, in another context, just after "the nineties' crises in Mexico, South East Asia and Russia," which included the 1994 economic crisis in Mexico, the 1997 Asian Financial Crisis, and the 1998 Russian financial crisis, Tobin summarized his idea:
"The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations. The idea is very simple: at each exchange of a currency into another a small tax would be levied - let's say, 0.5% of the volume of the transaction. This dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties' crises in Mexico, South East Asia and Russia have proven. My tax would return some margin of manoeuvre to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets."
Though James Tobin suggested the rate as "let's say 0.5%," in that interview setting, others have tried to be more precise in their search for the optimum rate.
Concepts and definitions
Tobin's concept
James Tobin’s purpose in developing his idea of a currency transaction tax was to find a way to manage exchange-rate volatility. In his view, "currency exchanges transmit disturbances originating in international financial markets. National economies and national governments are not capable of adjusting to massive movements of funds across the foreign exchanges, without real hardship and without significant sacrifice of the objectives of national economic policy with respect to employment, output, and inflation.”
Tobin saw two solutions to this issue. The first was to move “toward a common currency, common monetary and fiscal policy, and economic integration.” The second was to move “toward greater financial segmentation between nations or currency areas, permitting their central banks and governments greater autonomy in policies tailored to their specific economic institutions and objectives.” Tobin’s preferred solution was the former one but he did not see this as politically viable so he advocated for the latter approach: “I therefore regretfully recommend the second, and my proposal is to throw some sand in the wheels of our excessively efficient international money markets.”
Tobin’s method of “throwing sand in the wheels” was to suggest a tax on all spot conversions of one currency into another, proportional to the size of the transaction. He said:
It would be an internationally agreed uniform tax, administered by each government over its own jurisdiction. Britain, for example, would be responsible for taxing all inter-currency transactions in Eurocurrency banks and brokers located in London, even when sterling was not involved. The tax proceeds could appropriately be paid into the IMF or World Bank. The tax would apply to all purchases of financial instruments denominated in another currency---from currency and coin to equity securities. It would have to apply, I think, to all payments in one currency for goods, services, and real assets sold by a resident of another currency area. I don’t intend to add even a small barrier to trade. But I see offhand no other way to prevent financial transactions disguised as trade.
In the development of his idea, Tobin was influenced by the earlier work of John Maynard Keynes on general financial transaction taxes:
"I am a disciple of Keynes, and he, in his famous chapter XII of the General Theory on Employment Interest and Money, had already prescribed a tax on transactions, with the aim of linking investors to their actions in a lasting fashion. In 1971 I transferred this idea to exchange markets."
Keynes' concept stems from 1936 when he proposed that a transaction tax should be levied on dealings on Wall Street, where he argued that excessive speculation by uninformed financial traders increased volatility. For Keynes (who was himself a speculator) the key issue was the proportion of ‘speculators’ in the market, and his concern that, if left unchecked, these types of players would become too dominant. Keynes writes:
"Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation."
"The introduction of a substantial government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States."
Variations on Tobin tax idea
The Spahn tax
Main article: Spahn taxAccording to Paul Bernd Spahn, "Analysis has shown that the Tobin tax as originally proposed is not viable and should be laid aside for good." Furthermore, he said "it is virtually impossible to distinguish between normal liquidity trading and speculative "noise" trading. If the tax is generally applied at high rates, it will severely impair financial operations and create international liquidity problems, especially if derivatives are taxed as well. A lower tax rate would reduce the negative impact on financial markets, but not mitigate speculation where expectations of an exchange rate change exceed the tax margin."
In 1995, Spahn suggested an alternative involving "a two-tier rate structure consisting of a low-rate financial transactions tax, plus an exchange surcharge at prohibitive rates as a piggyback. The latter would be dormant in times of normal financial activities, and be activated only in the case of speculative attacks. The mechanism allowing the identification of abnormal trading in world financial markets would make reference to a "crawling peg" with an appropriate exchange rate band. The exchange rate would move freely within this band without transactions being taxed. Only transactions effected at exchange rates outside the permissible range would become subject to tax. This would automatically induce stabilizing behavior on the part of market participants."
Special Drawing Rights
On September 19, 2001, retired speculator George Soros put forward a proposal, Special Drawing Rights or SDRs that the rich countries would pledge for the purpose of providing international assistance, without necessarily dismissing the Tobin tax idea. He stated, "I think there is a case for a Tobin tax...(but) it is not at all clear to me that a Tobin tax would reduce volatility in the currency markets. It is true that it may discourage currency speculation but it would also reduce the liquidity of the marketplace."
Scope of the Tobin concept
See also: Financial transaction tax and Currency transaction taxThe term "Tobin tax" has sometimes been used interchangeably with the idea of a general financial transaction tax (FTT). An example of this is shown in the following media description of a 2009 European Union summit:
European Union leaders urged the International Monetary Fund on Friday to consider a global tax on financial transactions in spite of opposition from the US and doubts at the IMF itself. In a communiqué issued after a two-day summit, the EU’s 27 national leaders stopped short of making a formal appeal for the introduction of a so-called “Tobin tax” but made clear they regarded it as a potentially useful revenue-raising instrument.
Other times "Tobin tax" has been used to refer to a more a specific currency transaction tax (CTT) in the manner of Tobin's original idea. An example of this is shown in the following:
"The concept of a Tobin tax has experienced a resurgence in the discussion on reforming the international financial system. In addition to many legislative initiatives in favour of the Tobin tax in national parliaments, possible ways to introduce a Tobin-style currency transaction tax (CTT) are being scrutinised by the United Nations...."
Evaluating the Tobin tax specifically as a Currency Transaction Tax (CTT)
See also: Currency transaction taxOpinions are divided between those who believe that the Tobin tax could protect countries from spillovers of financial crises, and those who believe that the tax would constrain the effectiveness of the global economic system, increase price volatility, widen bid-ask spreads for end users such as investors, savers and hedgers, and destroy liquidity.
See also Evaluating the Tobin tax as a general Financial Transaction Tax (FTT)
Would national economies benefit from a Tobin tax?
In 1994, Canadian economist Rodney Schmidt noted that "in two-thirds of all the outright forward and swap transactions, the money moved into another currency for fewer than seven days. In only 1 per cent did the money stay for as long as one year. While the volatile exchange rates caused by all this rapid movement posed problems for national economies, it was the bread and butter of those playing the currency markets. Without constant fluctuations in the currency markets, Schmidt noted, there was little opportunity for profit."
"This certainly seemed to suggest the interests of currency traders and the interests of ordinary citizens were operating at cross-purposes."
"Schmidt also noted another interesting aspect of the foreign- exchange market: The dominant players were the private banks, which had huge pools of capital and access to information about currency values. Since much of the market involved moving large sums of money (typically in the tens of millions of dollars) for very short periods of time (often less than a day), banks were perfectly positioned to participate. Among swap transactions, which represented a major chunk of the foreign exchange market, 86 per cent of the transactions were actually between banks."
Central banks would gain more control over the value of national currencies
A representative of a “pro Tobin tax” NGO argued as follows: " is designed to reduce the power financial markets have to determine the economic policies of national governments. Traditionally, a country’s central bank buys and sells its own currency on international markets to keep its value relatively stable. The bank buys back its currency when a ‘glut’ caused by an investor selloff threatens to reduce the currency’s value. In the past, most central banks had enough cash in reserve to offset any selloff or ‘attack’. Not any longer. Speculators now have more cash than all the world’s central banks put together. Official global reserves are less than half the value of one day of global foreign-exchange turnover. Many countries are simply unable to protect their currencies from speculative attack."
"By cutting down on the overall volume of foreign-exchange transactions, a Tobin Tax would mean that central banks would not need as much reserve money to defend their currency. The tax would allow governments the freedom to act in the best interests of their own economic development, rather than being forced to shape fiscal and monetary policies according to demands of fickle financial markets."
Consequences of currency volatility
There are several consequences which some claim are associated with currency volatility and fluctuation in exchange rates:
- Reduces volume of international trade
- Reduces long term capital flows
- Increases speculation
- Increases resources absorbed in risk management
- Economic policy making becomes difficult for national governments
Such claims mirror some of the perceived disadvantages of flexible exchange rates versus fixed exchange rates.
See also: Currency crisisHistorical attempts to reduce speculation via fixed exchange rates
Matthew Sinclair, Research Director of TaxPayers' Alliance, notes that "one reason why few have supported a Tobin tax is that worries about foreign exchange speculation have slowly subsided as more countries have moved towards floating exchange rates, which do more to limit the potential for exchange rate speculation than a Tobin tax possibly could. Attempts to fix rates such as – in the 1980s and 1990s – the European Exchange Rate Mechanism (ERM) meant that we got large and sudden movements in exchange rates when speculators sensed that a peg could not be maintained, rather than the more fluid shifts of today." Nevertheless, it should be noted that the Tobin tax was not in effect in either the 1980s, nor today, and therefore there was no way to estimate the impact of confounding factors using a "scientific control" style of inquiry.
Is there an optimum Tobin tax rate?
When James Tobin was interviewed by Der Spiegel in 2001, the tax rate he suggested was 0.5%. His use of the phrase "let's say" ("sagen wir") indicated that he was not, at that point, in an interview setting, trying to be precise. Others have tried to be more precise or practical in their search for the Tobin tax rate.
It should be noted that tax rates of the magnitude of 0.1%-1% have been proposed by normative economists, without addressing the practicability of these socially desirable levels of taxation. In positive economics studies however, where due reference was made to the prevailing market conditions, the resulting tax rates have been significantly lower.
According to Garber (1996), competitive pressure on transaction costs (spreads) in currency markets has reduced these costs to fractions of a basis point. For example the EUR.USD currency pair trades with spreads as tight as 1/10th of a basis point, i.e. with just a 0.00001 difference between the bid and offer price, so "a tax on transactions in foreign exchange markets imposed unilaterally, 6/1000 of a basis point (or 0.00006%) is a realistic maximum magnitude. Similarly Shvedov (2004) concludes that "even making the unrealistic assumption that the rate of 0.00006% causes no reduction of trading volume, the tax on foreign currency exchange transactions would yield just $4.3 billion a year, despite an annual turnover in dozens of trillion dollars.
Accordingly, one of the modern Tobin tax versions, called the Sterling Stamp Duty, sponsored by certain UK charities, has a rate of 0.005% "in order to avoid market distortions", i.e. 100 times lower than Tobin himself envisaged in 2001. Sterling Stamp Duty supporters argue that this tax rate would not adversely affect currency markets and could still raise large sums of money.
In 2000, a representative of another "pro-Tobin tax" NGO stated that Tobin's idea was "to ‘throw some sand in the wheels’ of speculative flows. For a currency transaction to be profitable , the change in value of the currency must be greater than the proposed tax. Since speculative currency trades occur on much smaller margins, the Tobin Tax would reduce or eliminate the profits and, logically, the incentive to speculate. The tax is designed to help stabilize exchange rates by reducing the volume of speculation. And it is set deliberately low so as not to have an adverse effect on trade in goods and services or long-term investments."
Would there be net job losses if a Tobin tax was introduced?
In 2000, a representative of a “pro Tobin tax” NGO argued as follows: "When importers and exporters can’t be certain from one day to the next what their money is worth, economic planning – including job creation – goes out the window. Reduced exchange-rate volatility means that businesses would need to spend less money ‘hedging’ (buying currencies in anticipation of future price changes), thus freeing up capital for investment in new production ."
Is the tax easy to avoid?
On November 7, 2009, at the G20 finance ministers summit in Scotland, the head of the IMF, Dominique Strauss-Khan, said, "transactions are very difficult to measure and so it's very easy to avoid a transaction tax," However, in the year 2000, "eighty per cent of foreign-exchange trading place in just seven cities. Agreement by London, New York and Tokyo alone, would capture 58 per cent of speculative trading."
When presented with the problem of speculators shifting operations to offshore tax havens, a representative of a “pro Tobin tax” NGO argued as follows: "Agreement between nations could help avoid the relocation threat, particularly if the tax were charged at the site where dealers or banks are physically located or at the sites where payments are settled or ‘netted’. The relocation of Chase Manhattan Bank to an offshore site would be expensive, risky and highly unlikely – particularly to avoid a small tax. Globally, the move towards a centralized trading system means transactions are being tracked by fewer and fewer institutions. Hiding trades is becoming increasingly difficult. Transfers to tax havens like the Cayman Islands could be penalized at double the agreed rate or more. Citizens of participating countries would also be taxed regardless of where the transaction was carried out." In early December, 2009, economist Stephany Griffith-Jones agreed that the "greater centralisation and automisation of the exchanges' and banks' clearing and settlements systems....makes avoidance of payment more difficult and less desirable."
See also: Currency transaction report, Money Laundering Control Act, Bank Secrecy Act, Suspicious activity report, Money laundering, and StructuringEvaluating the Tobin tax as a general Financial Transaction Tax (FTT)
See also: Financial transaction tax and DeFazio financial transaction taxSee also Evaluating the Tobin tax specifically as a Currency Transaction Tax
Research evidence on transaction taxes - effect on volatility
One of the main economic claims raised by some in favor of financial transaction taxes is the hypothesis that such taxes reduce return volatility, and thus lead to an increase of long-term investor utility or produce more predictable levels of exchange rates. The impact of the Tobin tax on volatility is of particular concern, because the main justification given for this tax by its original developers (see Tobin 1978) was to improve the autonomy of macroeconomic policy by curbing international currency speculation and its destabilizing effect on national exchange rates. Indeed,
"if the Tobin Tax is not stabilizing, then much of the rest of the discussion on its feasibility and other related issues are probably moot." (Erturk, 2006).
Some modern advocates of the Tobin tax argue that volatility, which these normative economists tend to separate into "basic" and "excessive", can be reduced using a Tobin tax. This is consistent with early theoretical models (e.g. Stiglitz, 1989 and Summers and Summers, 1989 ), which assumed that short-term uninformed speculation, the so called 'noise trading', was a major source of price fluctuations (volatility).
Theoretical models
Most studies of the likely impact of the Tobin tax on financial markets volatility have been theoretical – researches conducted laboratory simulations or constructed economic models. Some of these theoretical studies have concluded that a transaction tax could reduce volatility by crowding out speculators (Westerhoff, 2003) or eliminating individual 'noise traders' (Palley, 1999), but that it 'would not have any impact on volatility in case of sufficiently deep global markets such as those in major currency pairs (Erturk, 2006), unlike in case of less liquid markets, such as those in stocks and (especially) options, where volatility would probably increase with reduced volumes (Davidson 1997, 1998). Behavioral finance theoretical models, such as those developed by Wei and Kim (1997) or Westerhoff and Dieci (2004) suggest that transaction taxes can reduce volatility, at least in the foreign exchange market.
Empirical studies
In most of the available empirical studies however, no statistically significant causal link has been found between an increase in transaction costs (transaction taxes or government-controlled minimum brokerage commissions) and a reduction in volatility - in fact a frequent unintended consequence observed by 'early adopters' after the imposition of a financial transactions tax (see Werner, 2003) has been an increase in the volatility of stock market returns, usually coinciding with significant declines in liquidity (market volume) and thus in taxable revenue (Umlauf, 1993).
For a recent evidence to the contrary, see e.g. Liu and Zhu (2009), which may be affected by selection bias given that their Japanese sample is subsumed by a research conducted in 14 Asian countries by Hu (1998), showing that "an increase in tax rate reduces the stock price but has no significant effect on market volatility". As Liu and Zhu (2009) point out, the different experience in Japan highlights the comment made by Umlauf (1993) that it is hazardous to generalize limited evidence when debating important policy issues such as the STT and brokerage commissions."
See also "Tobin tax proponents response to empirical evidence on volatility"
Who would gain and who would lose if the Tobin tax (FTT) were implemented?
See also: Financial transaction tax and DeFazio financial transaction taxWould average or small investors lose?
See also: Financial transaction tax and DeFazio financial transaction taxOn January 6, 2010 Simon Johnson, Professor of Economics at the MIT and a former Chief Economist at the IMF, presented his views on the Tobin tax in the context of an interview discussion of the global banking system:
Evan Davis, BBC Radio 4:
"There are various ideas around, aren't there, one of them is a Tobin tax, it's been associated with our own Prime Minister - a tax on global financial transactions. Is that a response, do you think, to the problems created by large banks and big bail-outs?"
Prof. Simon Johnson:
"I think it's hmm... partially a response, or an attempt to respond, that's not my preferred line, approach to the problem, I think that would lead to a lot of distortions, a lot of moving of activities offshore. If you did it at the full level of the G20, you might be able to get some traction. Evasion at that level would be hard. But still I think it doesn't address the core problem which is really about financial institutions that are 'Too Big to Fail'. Financial transaction tax is more of a tax on regular people like you and me."
Is there an optimum tax rate?
Financial transaction tax rates of the magnitude of 0.1%-1% have been proposed by normative economists, without addressing the practicability of these socially desirable levels of taxation. In positive economics studies however, where due reference was paid to the prevailing market conditions, the resulting tax rates have been significantly lower.
For instance, Edwards (1993) concluded that if the transaction tax revenue from taxing the futures markets were to be maximized (see Laffer curve), with the tax rate not leading to a prohibitively large increase in the marginal cost of market participants, the rate would have to be set so low that "a tax on futures markets will not achieve any important social objective and will not generate much revenue."
Political opinion
Opinions are divided between those who applaud that the Tobin tax could protect countries from spillovers of financial crises, and those who claim that the tax would also constrain the effectiveness of the global economic system, increase price volatility, widen bid-ask spreads for end users such as investors, savers and hedgers, and destroy liquidity.
Tobin tax proponents response to empirical evidence on volatility
Lack of direct supporting evidence for stabilizing (volatility-reducing) properties of Tobin-style transaction taxes in econometric research is acknowledged by some of the Tobin tax supporters:
"Ten studies report a positive relationship between transaction taxes and short-term price volatility, five studies did not find any significant relationship." (Schulmeister et al, 2008, p. 18).
These Tobin tax proponents have to therefore rely on indirect evidence in their favor, reinterpreting studies which do not deal directly with volatility, but instead with trading volume (with volume being generally reduced by transaction taxes, though it constitutes their tax base, see: negative feedback loop). This allows these Tobin tax proponents to state that "some studies show (implicitly) that higher transaction costs might dampen price volatility. This is so because these studies report that a reduction of trading activities is associated with lower price volatility." So if a study finds that reducing trading volume or trading frequency reduces volatility, these Tobin tax supporters combine it with the observation that Tobin-style taxes are volume-reducing, and thus should also indirectly reduce volatility ("this finding implies a negative relationship between transaction tax and volatility, because higher transaction costs will "ceteris paribus" always dampen trading activities)." (Schulmeister et al, 2008, p. 18).
There is yet another reason why some proponents of the Tobin tax maintain that it can reduce volatility, despite prevailing empirical evidence to the contrary. This is possible, because some Tobin tax supporters created a concept of a separate, custom-defined volatility. Rather than adopting one of the standard statistical definitions (e.g. conditional variance of returns, see Engle, 1982 ) leading economists favoring the Tobin tax prefer to define volatility as a "long-term overshooting of speculative prices (see Tobin, 1978 and Eichengreen, Tobin and Wyplosz, 1995 ). Evidence about this special type of volatility is missing and this is why some of the proponents, instead of conducting their own tests, prefer to blame financial econometric researchers for not addressing their special needs:
"Unfortunately, all empirical studies on the relationship between transaction costs, trading volume and price volatility in general, and on the possible effects of an FTT on volatility in particular, deal with short-term statistical volatility only. Therefore, the results of these studies cannot help to answer the question whether or not an FTT will mitigate misalignments of asset prices over the medium and long run."
(Schulmeister et al, 2008, p. 11).
Thus the beneficial impact of transaction taxes on the "Tobin volatility" can co-exist as a valid economic theory even without direct supporting evidence from the statistical volatility research, simply because of the special volatility definition, which allows all economists defending the Tobin tax to escape Popperian falsifiability.
Another shortcoming of all of the empirical volatility studies pointed out by some of the Tobin tax proponents is the lack of distinction between "basic" and "excessive" volatility, which "might have contributed to the contradictory and, hence, inconclusive results of these studies" (Schulmeister et al, 2008, p. 11-12). Unfortunately, no tests have been conducted so far, which would be able to operationalize "excessive" volatility assumed to exist by the Tobin tax theory (see Schulmeister et al, 2008, p. 11), therefore the acceptance of the Tobin-style transactions tax as a fiscal or monetary policy instrument requires clear understanding that basic theoretical phenomena underlying this tax, such as "excessive" volatility, still remain untested.
The fact that financial transaction taxes cannot be subjected to empirical tests stands as a caution to all sides of the debate against using the logical fallacy of "argument from ignorance".
Should speculators be encouraged, penalized or dissuaded?
The Tobin tax rests on the premise that speculators ought to be, as Tobin puts it, "dissuaded." This premise itself is a matter of debate: See main debate at main article on "speculation.".
Matthew Sinclair, Research Director of TaxPayers' Alliance, argues that "The whole idea of a Tobin tax is based on the flawed view that trading – or speculation – is a bad thing. The truth is that it isn’t: it helps the process of price discovery, makes markets work better, enhances liquidity, ensures that resources are priced correctly and generally helps oil the cogs of the global economy."
On the other side of the debate were the leaders of Germany who, in May 2008, planned to propose a worldwide ban on oil trading by speculators, blaming the 2008 oil price rises on manipulation by hedge funds. At that time India, with similar concerns, had already suspended futures trading of five commodities.
On December 3, 2009, US Congressman Peter DeFazio stated, "The American taxpayers bailed out Wall Street during a crisis brought on by reckless speculation in the financial markets,.....This legislation will force Wall Street to do their part and put people displaced by that crisis back to work."
On January 21, 2010, President Obama endorsed the Volcker Rule which deals with speculative investments of banks that don't benefit their customers. The Volcker Rule states that these investments played a key role in the financial crisis of 2007–2010.
Comparing evaluations of a Currency Transaction Tax and a Financial Transaction Tax
See also Scope of the Tobin concept and types of taxes.
The scope of a "currency transaction tax" focuses specifically on currency, whereas the scope of a "financial transaction tax" refers to all aspects of finance in general. Therefore the evaluations of those two will likewise have two different breadths of scope. This difference was recognized by Stephen Spratt in his writings where he indicates that a currency transaction tax is a subset of financial transaction taxes in terms of scope. This difference in "breadth of scope" is also described by Linda McQuaig when she refers to both "the Tobin tax – or its ... broader version, the financial transaction tax"
Tobin's evaluation of his tax on foreign exchange transactions -- using historical evidence
In 2001, just after "the nineties' crises in Mexico, South East Asia and Russia," which included the 1994 economic crisis in Mexico, the 1997 Asian Financial Crisis, and the 1998 Russian financial crisis, Tobin presented historical evidence as "proof" for his "tax on foreign exchange transactions":
" ... many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties' crises in Mexico, South East Asia and Russia have proven. My tax would return some margin of manoeuvre to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets."
Research evidence
An example of a Financial Transaction Tax (FTT) which remains in place today is the Stamp Duty Reserve Tax (SDRT). It was introduced in the UK in the Finance Act 1986 at a rate of 0.5% on share purchases, and this remains in place today, albeit with a relief for intermediaries (such as market makers and large banks that are members of a qualifying exchange).
Empirical evidence on the observed effects of the already introduced and abolished stock transaction taxes and a hypothetical Currency Transaction Tax (CTT) (Tobin) can be probably treated interchangeably, at least according to researchers like Aliber et al. (2003) who did not find any evidence on the differential effects of introducing or removing, stock transactions taxes or a hypothetical currency (Tobin) tax on any subset of markets or all markets.
Moreover, the similarity between currencies and stocks in the context of a tax designed to curb volatility such as CTT (or FTT in general) can be inferred from the almost identical (statistically indistinguishable) behavior of the volatilities of equity and exchange rate returns. Empirical researchers have been using exactly the same models to describe the behavior of both stock market return volatility and foreign exchange rate volatility (such as models belonging to the GARCH family, see Kearney and Patton, 2000; Worthington and Higgs, 2004; or Valadkhani and O'Brien, 2009 for recent evidence from around the world). (See Research evidence on financial transaction taxes - effect on volatility)
Practical considerations
Hanke et al. (2009) notices that "he economic consequences of introducing a Tobin Tax are completely unknown, as such a tax has not been introduced on any real foreign exchange market so far") The fact that the consequences of CTT (the currency version of the FTT) are "completely unknown" stands as a caution to all sides of the debate against using the logical fallacy of "argument from ignorance". At the same time, even in case of the stocks transaction taxes, where some empirical evidence is available, researchers warn that "it is hazardous to generalize limited evidence when debating important policy issues such as the transaction taxes" (see Umlauf, 1993 or Liu and Zhu, 2009 ).
From the practical viewpoint it would be no longer possible to introduce a non-currency transactions tax (even if foreign exchange transactions are formally exempt), since the advent of currency derivatives - currency futures and currency "stocks" i.e. exchange traded funds, all of which would have to be taxed together under a "non-currency" FTT (e.g. stock-and-derivatives-only tax proposed in the U.S. in 2009).
Moreover, restricting the financial transactions tax to foreign exchange only (as envisaged originally by Tobin) would not be desirable according to some modern financial tax proponents (see e.g. Schulmeister et al., 2008, p. 6 ). According to them, a "general FTT seems more attractive than a specific transaction tax" (such as a currency-only Tobin tax), because it would prevent tax avoidance (substitution of similar untaxed instruments), could significantly increase the tax base and could be implemented more easily on organized exchanges than in a dealership market like the global foreign exchange market.
Original idea and global justice movement
Tobin's more specific concept of a "currency transaction tax" from 1972 lay dormant for more than 20 years but was revived by the advent of the 1997 Asian Financial Crisis. In December, 1997 Ignacio Ramonet, editor of Le Monde Diplomatique, renewed the debate around the Tobin tax with an editorial titled "Disarming the markets". Ramonet proposed to create an association for the introduction of this tax, which was named ATTAC (Association for the Taxation of financial Transactions for the Aid of Citizens). The tax then became an issue of the global justice movement or alter-globalization movement and a matter of discussion not only in academic institutions but even in streets and in parliaments in the UK, France, and around the world.
In an interview given to Der Spiegel in 2001, James Tobin distanced himself from the global justice movement and continued to state the validity of his proposal,
- "I have absolutely nothing in common with those anti-globalisation rebels. Of course I am pleased; but the loudest applause is coming from the wrong side. Look, I am an economist and, like most economists, I support free trade. Furthermore, I am in favour of the International Monetary Fund, the World Bank, the World Trade Organisation. They've hijacked my name ...The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations...." (See last part of quote in the above lead section).
Tobin observed that, while his original proposal had only the goal of putting a brake on the foreign exchange trafficking, the antiglobalization movement had stressed the income from the taxes with which they want to finance their projects to improve the world. He declared himself not contrary to this use of the tax's income, but stressed that it was not the important aspect of the tax.
ATTAC and other organizations have recognized that while they still consider Tobin's original aim as paramount, they think the tax could produce funds for development needs in the South (such as the Millennium Development Goals), and allow governments, and therefore citizens, to reclaim part of the democratic space conceded to the financial markets.
In March, 2002, LSE Professor Willem Buiter, who studied under James Tobin, wrote a glowing obituary for the man, but also remarked that, "This ...was in recent years adopted by some of the most determined enemies of trade liberalisation, globalisation and the open society." Buiter added, "The proposal to use the Tobin tax as a means of raising revenues for development assistance was rejected by Tobin, and he forcefully repudiated the anti-globalisation mantra of the Seattle crowd." In September, 2009, Buiter also wrote in the Financial Times, "Tobin was a genius...but the Tobin tax was probably his one daft idea".
It should be noted that in those same "years" that Buiter spoke of, the Tobin tax was also "adopted" or supported in varying degrees by the people who were not, as he put it, "enemies of trade liberalisation." Among them were several supporters from 1990 to 1999, including Larry Summers and several from 2000 to 2004, including lukewarm support from George Soros.
Tobin tax projects around the world
It was originally assumed that the Tobin tax would require multilateral implementation, since one country acting alone would find it very difficult to implement this tax. Many people have therefore argued that it would be best implemented by an international institution. It has been proposed that having the United Nations manage a Tobin tax would solve this problem and would give the U.N. a large source of funding independent from donations by participating states. However, there have also been initiatives of national dimension about the tax. (This is in addition to the many countries that have foreign exchange controls.)
Whilst finding some support in countries such as France and Latin America, the Tobin tax proposal came under much criticism from economists and governments, especially those with a large international banking sector, who said it would be impossible to implement and would destabilise foreign exchange markets.
Multinational projects
Europe - Eurozone
In the UK, the proposed Tobin tax was initially spearheaded by development charity War on Want who campaigned for its introduction from 1998 and who set up the Tobin Tax Network in 2002. At that time, global trade on the foreign exchange markets was running at $1,500bn every day.. From the development lobby's point of view, the Tobin tax had the advantage of combining regulation of the international financial system with a means of raising money for development to counteract the falling aid budgets of most rich countries.
In Europe the Tobin tax idea was the subject of much discussion in the summer of 2001. In that year, "the French Parliament passed a law committing France to the introduction of the tax when other European Union countries sign up to it."
On June 15, 2004, the Commission of Finance and Budget in the Belgian Federal Parliament approved a bill implementing the Spahn tax (a version of the Tobin tax proposed by Paul Bernd Spahn). According to the legislation, Belgium will introduce the Tobin tax once all countries of the eurozone introduce a similar law. In July 2005 former Austrian chancellor Wolfgang Schüssel called for a European Union Tobin tax to base the communities' financial structure on more stable and independent grounds. However, the proposal was rejected by the European Commission.
On November 23, 2009, Europe's first President Herman Van Rompuy, who frequently advocates turning Europe into a super-state and is pushing for a first European tax, argued for a European version of the Tobin-Tax. Countering him was his sister, Christine, who said, "any new taxes would directly affect the poor". However it is important to point out that this European version of a so-called Tobin tax is "a new Euro tax, all shopping and petrol would be taxed." That version is a consumption tax instead of the tax on foreign exchange transactions Tobin described. This again highlights the lack of clarity on the exact definition of a Tobin tax which is often seen in society.
See also the section entitled, "Would there be net job losses if a Tobin tax was introduced?"
The Sterling Stamp Duty
See also: Stamp duty in the United KingdomIn 2005 the Tobin tax was developed into a modern proposal by the United Kingdom NGO Stamp Out Poverty. It simplified the two-tier tax in favour of a mechanism designed solely as a means for raising development revenue. The currency market by this time had grown to $2,000 billion a day. The possibility of a currency transaction tax for the UK was investigated by City of London firm Intelligence Capital, who found that a tax on Pound sterling wherever it was traded in the world, as opposed to a tax on all currencies traded in the UK, was indeed feasible and could be unilaterally implemented by the UK government.
The Sterling Stamp Duty, as it became known would be set at a rate 200 times lower than Tobin had envisaged, which “pro Tobin tax” supporters claim would not adversely affect currency markets and could still raise huge sums of money. The global currency market grew to $3,200 billion a day in 2007, or £400,000 billion per annum with the trade in sterling, the fourth most traded currency in the world, worth £34,000 billion a year. A sterling stamp duty set at 0.005% some claim would have raised in the region of £2 billion a year in 2007. The All Party Parliamentary Group for Debt, Aid and Trade published a report in November 2007 into financing for development in which it recommended that the UK government undertake rigorous research into the implementation of a 0.005% stamp duty on all sterling foreign exchange transactions, to provide additional revenue to help bridge the funding gap required to pay for the Millennium Development Goals.
UN Global Tax
According to Stephen Spratt, "the revenues raised could be used for....international development objectives...such as meeting the ." These are eight international development goals that 192 United Nations member states and at least 23 international organizations have agreed (in 2000) to achieve by the year 2015. They include reducing extreme poverty, reducing child mortality rates, fighting disease epidemics such as AIDS, and developing a global partnership for development.
In 2000, a representative of a “pro Tobin tax” NGO proposed the following: "In the face of increasing income disparity and social inequity, the Tobin Tax represents a rare opportunity to capture the enormous wealth of an untaxed sector and redirect it towards the public good. Conservative estimates show the tax could yield from $150-300 billion annually. The UN estimates that the cost of wiping out the worst forms of poverty and environmental destruction globally would be around $225 billion per year."
At the UN September 2001 World Conference against Racism, when the issue of compensation for colonialism and slavery arose in the agenda, Fidel Castro, the President of Cuba, advocated the Tobin Tax to address that issue. (According to Cliff Kincaid, Castro advocated it "specifically in order to generate U.S. financial reparations to the rest of the world," however a closer reading of Castro's speech shows that he never did mention "the rest of the world" as being recipients of revenue.) Castro cited holocaust reparations as a previously established precedent for the concept of reparations.
Castro also suggested that the United Nations be the administrator of this tax, stating the following:
"May the tax suggested by Nobel Prize Laureate James Tobin be imposed in a reasonable and effective way on the current speculative operations accounting for trillions of US dollars every 24 hours, then the United Nations, which cannot go on depending on meager, inadequate, and belated donations and charities, will have one trillion US dollars annually to save and develop the world. Given the seriousness and urgency of the existing problems, which have become a real hazard for the very survival of our species on the planet, that is what would actually be needed before it is too late."
On March 6, 2006, US Congressman Ron Paul stated the following: "The United Nations remains determined to rob from wealthy countries and, after taking a big cut for itself, send what’s left to the poor countries. Of course, most of this money will go to the very dictators whose reckless policies have impoverished their citizens. The UN global tax plan...resurrects the long-held dream of the 'Tobin Tax'. A dangerous precedent would be set, however: the idea that the UN possesses legitimate taxing authority to fund its operations."
Latin America - Bank of the South
In early November 2007, a regional Tobin tax was adopted by the Bank of the South, after an initiative of Presidents Hugo Chavez from Venezuela and Néstor Kirchner from Argentina.
G20 nations
The first nation in the G20 group to formally accept the Tobin tax was Canada. On March 23, 1999, the Canadian House of Commons passed a resolution directing the government to "enact a tax on financial transactions in concert with the international community." However, ten years later, in November 2009, at the G20 finance ministers summit in Scotland, the representatives of the minority government of Canada spoke publicly on the world stage in opposition to that Canadian House of Commons resolution.
In 2001, "the French Parliament passed a law committing France to the introduction of the tax when other European Union countries sign up to it."
In September, 2009, French president Nicolas Sarkozy brought up the issue of a Tobin tax once again, suggesting it be adopted by the G20.
On November 7, 2009, prime minister Gordon Brown said that G-20 should consider a tax on speculation, although did not specify that it should be on currency trading alone. The BBC reported that there was a negative response to the plan among the G20.
By December 11, 2009, European Union leaders expressed broad support for a Tobin tax in a communiqué sent to the International Monetary Fund. On that day, the Financial Times reported the following: "Since the Nov 7 summit of the G20 Finance Ministers , the head of the International Monetary Fund, Mr Strauss-Kahn seems to have softened his doubts, telling the CBI employers' conference: "We have been asked by the G20 to look into financial sector taxes . . This is an interesting issue . . We will look at it from various angles and consider all proposals.""
For supporters of a Tobin tax, there is a wide range of opinion on who should administer a global Tobin tax and what the revenue should be used for. There are some who think that it should take the form of an insurance: In early November 2009, at the G20 finance ministers summit in Scotland, the British Prime Minister "Mr. Brown and Nicolas Sarkozy, France’s president, suggested that revenues from the Tobin tax could be devoted to the world’s fight against climate change, especially in developing countries. They suggested that funding could come from “a global financial transactions tax ..." However British officials later argued the main point of a financial transactions tax would be provide insurance for the global taxpayer against a future banking crisis."
National projects
In July, 2006, analyst Marion G. Wrobel examined the international experiences of various countries with financial transaction taxes.
Sweden
Wrobel's paper highlighted the Swedish experience with financial transaction taxes. In January 1984, Sweden introduced a 0.5% tax on the purchase or sale of an equity security. Thus a round trip (purchase and sale) transaction resulted in a 1% tax. In July 1986 the rate was doubled. In January 1989, a considerably lower tax of 0.002% on fixed-income securities was introduced for a security with a maturity of 90 days or less. On a bond with a maturity of five years or more, the tax was 0.003%.
The revenues from taxes were disappointing; for example, revenues from the tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kroner per year. They did not amount to more than 80 million Swedish kroner in any year and the average was closer to 50 million. In addition, as taxable trading volumes fell, so did revenues from capital gains taxes, entirely offsetting revenues from the equity transactions tax that had grown to 4,000 million Swedish kroner by 1988.
On the day that the tax was announced, share prices fell by 2.2%. But there was leakage of information prior to the announcement, which might explain the 5.35% price decline in the 30 days prior to the announcement. When the tax was doubled, prices again fell by another 1%. These declines were in line with the capitalized value of future tax payments resulting from expected trades. It was further felt that the taxes on fixed-income securities only served to increase the cost of government borrowing, providing another argument against the tax.
Even though the tax on fixed-income securities was much lower than that on equities, the impact on market trading was much more dramatic. During the first week of the tax, the volume of bond trading fell by 85%, even though the tax rate on five-year bonds was only 0.003%. The volume of futures trading fell by 98% and the options trading market disappeared. On 15 April 1990, the tax on fixed-income securities was abolished. In January 1991 the rates on the remaining taxes were cut in half and by the end of the year they were abolished completely. Once the taxes were eliminated, trading volumes returned and grew substantially in the 1990s.
It should be noted that Wrobel's studies do not address the global economy as a whole, as James Tobin did when he spoke of "the nineties' crises in Mexico, South East Asia and Russia," which included the 1994 economic crisis in Mexico, the 1997 Asian Financial Crisis, and the 1998 Russian financial crisis.
The Swedish experience of a transaction tax was with purchase or sale of equity securities, fixed income securities and derivatives. In global international currency trading, however, the situation could, in theory, look quite different: In 2000, a representative of a “pro Tobin tax” NGO argued as follows: " could boost world trade by helping to stabilize exchange rates. Wildly fluctuating rates play havoc with businesses dependent on foreign exchange as prices and profits move up and down, depending on the relative value of the currencies being used. When importers and exporters can’t be certain from one day to the next what their money is worth, economic planning – including job creation – goes out the window. Reduced exchange-rate volatility means that businesses would need to spend less money ‘hedging’ (buying currencies in anticipation of future price changes), thus freeing up capital for investment in new production."
However, Markku Lanne and Timo Vesala of University of Helsinki stated that "a transaction tax is likely to amplify, not dampen, volatility in foreign exchange markets", casting significant doubt over the NGO's claims. LSE Economist Charles Goodhart argues, "it would have the effect of raising both the volatility and the costs of financial markets in the short run."
Another view is that of Stephen Spratt of Intelligence Capital Limited who comments on the Swedish experience with the following statement: "The evidence on this issue remains inconclusive." He points to two studies, stating the following: ".. using a model-based approach, Wei and Kim (1997) find transaction taxes reducing volatility in the FX market, a result confirmed in a separate model developed by Westerhoff and Dieci (2004), which uses a behavioural finance approach to the issue."
Supporters and Opposers (in chronological order)
From 1972 to 1990
- 1972 - Author of "Tobin tax" James Tobin
- 1989 - Supporter: Lawrence Summers
From 1990 to 1999
- 1994 - In Canada, economist Rodney Schmidt's research, beginning in the spring of 1994, "came about because Finance Minister Paul Martin himself had expressed an interest in the tax and the possibility of raising it at Group of 7 meeting in Halifax."
- 1994 - “Lloyd Bentsen, who was at the time United States Secretary of the Treasury, was supportive …. he began raising the subject informally at the regular meetings of G7 finance ministers.
- 1994 – "support from high levels within the French government."
- June 16, 1995, Paul Bernd Spahn opposed the original form of the Tobin tax and proposed his own variation (see Spahn tax).
- On August 1, 1995, an IMF Working Paper No. 95/77 Financial Transactions Taxes by Shome,Parthasrathi and Stotsky, Janet Gale found that "the economic effects of financial transactions taxes on capital markets are seen to be pervasive. They may impose significant efficiency costs by impairing the smooth functioning of financial markets, increasing the cost of capital, and distorting the structure of capital financing. Their effects on the volatility of capital flows, either in domestic or international financial markets, are uncertain, as are their distributional and revenue effects."
- In 1996, in New Zealand, Don Brash, when he was the Governor of the Reserve Bank, stated that a Tobin tax in New Zealand would not have the desired effect of reducing the volume of international financial transactions or in reducing market volatility.
- 1997 - Supporter - Ignacio Ramonet
- 1998 - Supporter - Economics writer Linda McQuaig
- 1998 - Supporters - ATTAC - (Association for the Taxation of Financial Transactions for the Aid of Citizens)
- 1999 - In Canada, the Tobin tax was revived largely through the efforts of Canadian activists in the 1990s, and on March 23, 1999 the Canadian House of Commons passed a resolution directing the government to "enact a tax on financial transactions in concert with the international community."
From 2000 to 2004
- 2000 - Supporters - Finnish Government
- In 2001, "the French Parliament passed a law committing France to the introduction of the tax when other European Union countries sign up to it."
- In 2001 the charity War on Want released The Robin Hood Tax, a report explaining the case for a currency transactions tax. War on Want also sets up the Tobin Tax Network to develop the proposal and press for its introduction.
- 2001 - September 19 - Speculator George Soros, put forward a different proposal, Special Drawing Rights or SDRs that the rich countries would pledge for the purpose of providing international assistance, without necessarily dismissing the Tobin tax idea. He stated, "It is not at all clear to me that a Tobin tax would reduce volatility in the currency markets. It is true that it may discourage currency speculation but it would also reduce the liquidity of the marketplace."
- In 2001, the IMF conducted considerable research that opposes a transaction tax. In 2001 findings by Habermeier, Karl Friedrich and Kirilenko, Andrei state that "...transaction taxes or such equivalents as capital controls can have negative effects on price discovery, volatility, and liquidity and lead to a reduction in the informational efficiency of markets."
- 2001 - Supporter: Fidel Castro - At the UN September 2001 World Conference against Racism, when the issue of compensation for colonialism and slavery arose in the agenda, Fidel Castro, the President of Cuba, advocated the Tobin Tax to address that issue. (According to Cliff Kincaid, Castro advocated it "specifically in order to generate U.S. financial reparations to the rest of the world," however a closer reading of Castro's speech shows that he never did mention "the rest of the world" as being recipients of revenue.) Castro cited holocaust reparations as a previously established precedent for the concept of reparations.
- In January, 2003, in Latin America, the Tobin tax was supported by the president of Brazil, Luiz Inácio Lula da Silva, and the president of Venezuela, Hugo Chávez.
- On June 15, 2004, the Commission of Finance and Budget in the Belgian Federal Parliament approved a bill implementing the Spahn tax (a version of the Tobin tax proposed by Paul Bernd Spahn).
From 2005 to 2008
- In July 2005 former Austrian chancellor Wolfgang Schüssel called for a European Union Tobin tax to base the communities' financial structure on more stable and independent grounds. However, the proposal was rejected by the European Commission.
- In 2006, Markku Lanne and Timo Vesala of University of Helsinki write in the Bank of Finland Research Discussion Paper No. 11/2006 The Effect of a Transaction Tax on Exchange Rate Volatility(2006) that "a transaction tax is likely to amplify, not dampen, volatility in foreign exchange markets."
- In September 2006, George Monbiot argues in favour of a Tobin Tax, in his book Heat: How to Stop the Planet Burning.
- In early November 2007, a regional Tobin tax was adopted by the Bank of the South, after an initiative of Presidents Hugo Chavez from Venezuela and Néstor Kirchner from Argentina.
2009
- In August, 2009, Adair Turner, chair of the United Kingdom Financial Services Authority, in an interview for Prospect magazine supported the idea of new global taxes on financial transactions, warning that a “swollen” financial sector paying excessive salaries has grown too big for society.
- In early November 2009, at the G20 finance ministers summit in Scotland, the British Prime Minister Gordon Brown raised the idea of a tax on financial transactions, but did not go into specific details. At the same summit, the US Treasury Secretary Timothy Geithner advised the US does not support the Tobin Tax.
- In early November, 2009, the Lex column of Financial Times opposes the Tobin tax, in Tobin or not Tobin it writes "The Tobin tax should remain a curiosity of economic history."
- In early November, 2009, the US Treasury Secretary Timothy Geithner advised the US does not support the Tobin Tax.
- In November 2009, at the G20 finance ministers summit, the representatives of the minority government of Canada spoke publicly on the world stage in opposition to the Canadian House of Commons 1999 resolution to "enact a tax on financial transactions in concert with the international community."
- In November, 2009, Matthew Sinclair, Research Director of The TaxPayers' Alliance, wrote an article in the London newspaper City AM A Tobin Tax would destroy London without making the world safer
- In late November, 2009 Paul Krugman, New York Times columnist and professor of Economics and International Affairs at Princeton University, argued that a Tobin Tax would have ameliorated the Financial crisis of 2007–2010. He wrote, "...bad investments aren’t the whole story of the crisis. What turned those bad investments into catastrophe was the financial system’s excessive reliance on short-term money....a financial transactions tax, by discouraging reliance on ultra-short-run financing, would have made such a run much less likely. So contrary to what the skeptics say, such a tax would have helped prevent the current crisis — and could help us avoid a future replay." Krugman wrote that it is "an idea whose time has come."
- In late November, 2009, Economist Charles Goodhart, Professor Emeritus of Banking and Finance at LSE and developer of Goodhart's law, was scathing in his criticism of "radical and consumer groups go on backing the Tobin tax idea". He argued, "Many of those who support such a tax neither know, nor care, what effects it might have on market efficiency. Besides a, generally misguided view that its imposition would fall primarily on the financial sector, rather than be passed on to its customers, the hope is that such a tax would produce lots of lovely revenue, to be spent on good deeds, such as foreign aid."
- In early December, 2009, economist Stephany Griffith-Jones advocated a very low but "internationally co-ordinated tax on financial transactions, often described as a Tobin tax."
- In early December, 2009 - Supporter - Government of France
- In early December, 2009 - Supporter - Government of Brazil
- In early December, 2009 - Supporter - Government of Germany
- In early December, 2009 - Supporter - Hector Sants, Chief Executive Officer of the United Kingdom Financial Services Authority
- On December 11, 2009, the Financial Times reported the following: "Since the Nov 7 summit of the G20 Finance Ministers , the head of the International Monetary Fund, Mr Strauss-Kahn seems to have softened his doubts, telling the CBI employers' conference: "We have been asked by the G20 to look into financial sector taxes . . This is an interesting issue . . We will look at it from various angles and consider all proposals.""
- December 13, 2009 - Volcker said he "instinctively opposed" any tax on financial transactions. "But it may be worthwhile to look into the current proposals as long as the result is not predetermined. That would at least end all this renewed talk about the idea, but overall I am skeptical about these ideas."
- On December 21, 2009, Irene Aldridge took a main street approach towards her opposition of the tax.
2010
- On January 26, 2010, Bank of England Governor Mervyn King dismissed the idea of a “Tobin tax”. “Of all the components of radical reform, I think a Tobin tax is bottom of the list,” said Mr King. “It’s not thought to be the answer to the 'too big to fail' problem - there’s much more support for the idea of a US-type levy.”
- Feb 5, 2010 - "Paul Volcker, the influential mind behind President Barack Obama's dramatic banking-reform proposals, spoke in its favour." "Even the U.S., which had been resisting, now seems willing to at least consider it, after former central banker Paul Volcker recently emerged as Barack Obama's key adviser on financial reform, pushing aside Treasury Secretary Tim Geithner. Geithner is hostile to the tax; Volcker sees some merit in it."
- Feb 5, 2010 - Supporter - Angela Merkel, Chancellor of Germany
- Feb 5, 2010 - Supporter - Christine Lagarde, the Minister of Economic Affairs, Industry and Employment of France
- February 9, 2010 - Supporter - Economics writer Linda McQuaig
See also
- Alter-globalization
- ATTAC (Association for the Taxation of Financial Transactions for the Aid of Citizens)
- Bank for International Settlements
- Central banks - which issue currency
- Credit crunch
- Currencies
- Currency crisis
- Currency transaction report
- Currency transaction tax
- DeFazio financial transaction tax
- Europeans for Financial Reform
- Exorbitant privilege
- Fictitious capital
- Financial markets
- Financial transaction tax
- Fluctuation in exchange rates
- Foreign exchange controls
- Foreign exchange derivative
- Foreign exchange market
- Global Justice Movement
- Jubilee 2000
- Liquidity crisis
- List of corporate jargon
- Money Market
- Noise (economic)
- Paul Bernd Spahn
- Spahn tax
- Speculation
- Speculative attack
- Speculation in foreign exchange markets
- Spot market
- Sudden stop (economics)
- Volatility (finance)
- Volatility risk
- Consequences of currency volatility
Related economic crises
- 1994 economic crisis in Mexico
- 1997 Asian Financial Crisis
- 1998 Russian financial crisis
- Argentine economic crisis (1999–2002)
- Financial crisis of 2007–2010
References
This article includes a list of general references, but it lacks sufficient corresponding inline citations. Please help to improve this article by introducing more precise citations. (January 2010) (Learn how and when to remove this message) |
- ^ James Tobin (July/October 1978). "A Proposal for International Monetary Reform". Eastern Economic Journal. Eastern Economic Association. pp. 153–159. Retrieved 2010-01-31.
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(help) - ^ Excerpt from original German article:"....wie die Krisen in Mexiko, Südostasien und Russland während der neunziger Jahre gezeigt haben. Meine Steuer würde Notenbanken kleiner Länder Handlungsspielraum zurückgeben und dem Diktat der Finanzmärkte etwas entgegensetzen." - Christian Von Reiermann, and Michaela Schießl (03.09.2001). "Die missbrauchen meinen Namen (translated as "They Are Misusing My Name") (Interview with James Tobin)". Spiegel Online. Retrieved 2010-01-01.
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(help) - ^ Der Spiegel - German interview translated into English (Sept 3, 2001). "James Tobin: "The antiglobalisation movement has highjacked my name"". Jubilee Research, a successor to Jubilee 2000 UK. Retrieved 11 February 2010.
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(help) - ^ Christian Von Reiermann, and Michaela Schießl (03.09.2001). "Die missbrauchen meinen Namen (translated as "They Are Misusing My Name") (Interview with James Tobin)". Spiegel Online. Retrieved 2010-01-01.
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(help) - ^ Excerpt from original German article:"SPIEGEL: Diese Bewegung will die Einführung einer Steuer auf Devisengeschäfte. Damit sollen die Kapitalmärkte gebändigt und mit den zusätzlichen Einnahmen die Entwicklungshilfe verstärkt werden. Klingt das nicht wie Ihr Vorschlag?
Tobin: Ich hatte vorgeschlagen, die Einnahmen der Weltbank zur Verfügung zu stellen. Aber darum ging es mir gar nicht. Die Devisenumsatzsteuer war dafür gedacht, Wechselkursschwankungen einzudämmen. Die Idee ist ganz simpel: Bei jedem Umtausch von einer Währung in die andere würde eine kleine Steuer fällig, sagen wir von einem halben Prozent des Umsatzes. So schreckt man Spekulanten ab. Denn viele Investoren legen ihr Geld sehr kurzfristig in Währungen an. Wird dieses Geld plötzlich zurückgezogen, müssen die Länder die Zinsen drastisch anheben, damit die Währung attraktiv bleibt. Hohe Zinsen aber sind oft desaströs für die heimische Wirtschaft, wie die Krisen in Mexiko, Südostasien und Russland während der neunziger Jahre gezeigt haben. Meine Steuer würde Notenbanken kleiner Länder Handlungsspielraum zurückgeben und dem Diktat der Finanzmärkte etwas entgegensetzen." - Christian Von Reiermann, and Michaela Schießl (03.09.2001). "Die missbrauchen meinen Namen (translated as "They Are Misusing My Name") (Interview with James Tobin)". Spiegel Online. Retrieved 2010-01-01.
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(help) - ^ Speigel Online International (09/03/2001). ""They are misusing my name"". English Summaries . Speigel Online International. Retrieved 2010-01-01.
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(help) - James Tobin-El movimiento antiglobalización abusa de mi nombre
- ^ John Maynard Keynes (1936). "The General Theory of Employment, Interest and Money" (PDF). p. 104. Retrieved 2010-02-04.
- ^ John Maynard Keynes (1936). "The General Theory of Employment, Interest and Money" (PDF). p. 105. Retrieved 2010-02-04.
- ^ Paul Bernd Spahn (June 16, 1995). "International Financial Flows and Transactions Taxes: Survey and Options" (PDF). University of Frankfurt/Main; Paper originally published with the IMF as Working Paper WP/95/60. Retrieved 2010-01-13.
- Asia Society: Speeches
- ^ Tony Barber. "EU leaders urge IMF to consider global Tobin tax". The Financial Times.
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suggested) (help) Cite error: The named reference "EUcall" was defined multiple times with different content (see the help page). - Peter Wahl and Peter Waldow (April 1, 2001). "Currency Transaction Tax - a Concept with a Future" (PDF). World Economy, Ecology & Development Association (WEED). Retrieved 11 February 2010.
- ^ Linda McQuaig (March 22, 1998). "The Cult of impotence; Making Sure the Rich Stay Rich". Toronto Star; republished by Hartford Web Publishing. Retrieved 2010-01-11.
- ^ Robin Round (January-February, 2000). "Time for Tobin!". New Internationalist. Retrieved 2009-12-17.
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(help) - http://www.taxpayersalliance.com/media/2009/11/city-am-matthew-sinclair-a-tobin-tax-would-destroy-london-without-making-the-world-safer.html
- Garber, Peter M. (1996). "Issues of Enforcement and Evasion in a Tax on Foreign Exchange Transactions,” in: The Tobin Tax: Coping with Financial Volatility. Mahbub ul Haq, Inge Kaul, and Isabelle Grunberg, eds. (New York, Oxford: Oxford University Press, 1996), p. 135.
- Shvedov, Maxim (2004). Transaction Tax: General Overview. CRS Report for Congress, Order Code RL32266, p. 7.
- Stephen Spratt of Intelligence Capital (September, 2006). "A Sterling Solution". Stamp Out Poverty report. Stamp Out Poverty Campaign. Retrieved 2010-01-02.
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(help) - ^ Robin Round (January-February, 2000). "Time for Tobin!". New Internationalist. Retrieved 2009-12-17.
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(help) - ^ BBC (November 7, 2009). "Lukewarm reaction to UK tax plan". BBC. Retrieved 2009-12-17.
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(help) - James Tobin-El movimiento antiglobalización abusa de mi nombre
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(help) - Stephen Spratt of Intelligence Capital (September 2006). "A Sterling Solution". Stamp Out Poverty report. Stamp Out Poverty Campaign. p. 15. Retrieved 2010-01-02.
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(help) - ^ Stephen Spratt of Intelligence Capital (September 2006). "A Sterling Solution". Stamp Out Poverty report. Stamp Out Poverty Campaign. p. 19. Retrieved 2010-01-02.
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(help) - Aliber, R., B. Chowdhry, and S. Yan, 2003. Some Evidence that a Tobin Tax on Foreign Exchange Transactions Might Increase Volatility. European Finance Review 7(3), 481-510.
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- Hanke, M., J. Huber, M. Kirchler, and M. Sutter, 2009. The economic consequences of a Tobin tax - An experimental analysis. Journal of Economic Behavior and Organization 65, 86-104.
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- Umlauf, Steven R., 1993. Transaction taxes and the behavior or the Swedish stock market, Journal of Financial Economics 33(2), 227-240.
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- Speigel Online International (09/03/2001). ""They are misusing my name"". English Summaries . Speigel Online International. Retrieved 2010-01-01.
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(help) - James Tobin-El movimiento antiglobalización abusa de mi nombre
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(help) - Paul Bernd Spahn (June 16, 1995). "International Financial Flows and Transactions Taxes: Survey and Options" (PDF). University of Frankfurt/Main; Paper originally published with the IMF as Working Paper WP/95/60. Retrieved 2010-01-13.
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(help) - Macer Hall and Alison Little (November 19, 2009). "Belgian PM Herman Van Rompuy called clown by sister Christine". Daily Express. Retrieved 2010-29-01.
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(help) - Andrew Moran (November 23, 2009). "Europe's first President calls for Euro tax, Euro identity". Digital Journal. Retrieved 2010-29-01.
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(help) - Stephen Spratt of Intelligence Capital (September, 2006). "A Sterling Solution". Stamp Out Poverty report. Stamp Out Poverty Campaign. Retrieved 2010-01-02.
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(help) - Schmidt, R. 2007 Currency Transaction Tax: Rate & Revenue Estimates, The North-South Institute
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(help) - SIN PERMISO - artículos en la WEB
- The G20 is made up of the G7 plus others. The G20 was established in September, 1999, and Canada was part of the original G7. There was no Canadian election between the March 23, 1999 Canadian adoption of the Tobin tax resolution, and the September 1999 formation of the G20, so the government remained the same.
- David Hillman (September, 2004). "Time for Tobin". New Internationalist. Retrieved 2010-01-02.
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(help) - Tobin tax remains Treasury ambition (December 11, 2009). "Tobin tax remains Treasury ambition". Financial Times. Retrieved 2009-12-29.
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- Financial Transaction Taxes: The International Experience and the Lessons for Canada. http://dsp-psd.tpsgc.gc.ca/Collection-R/LoPBdP/BP/bp419-e.htm
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- James Tobin-El movimiento antiglobalización abusa de mi nombre
- Archivsuche - Archiv - SPIEGEL ONLINE - Nachrichten
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- Shang-Jin Wei and Jungshik Kim (March, 1999). "The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise?". Center for International Development at Harvard University in its series CID Working Papers with number 5. Retrieved 2010-01-02.
{{cite web}}
: Check date values in:|date=
(help) - , Frank H. Westerhoff and Roberto Dieci (February, 2006). "The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach". Elsevier in its Journal of Economic Dynamics and Control. Retrieved 2010-01-02.
{{cite web}}
: Check date values in:|date=
(help) - Stephen Spratt of Intelligence Capital (September 2006). "A Sterling Solution". Stamp Out Poverty report. Stamp Out Poverty Campaign. p. 18. Retrieved 2010-01-02.
- http://www.imf.org/external/pubs/cat/longres.cfm?sk=1353.0
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(help) - The Robin Hood Tax
- Asia Society: Speeches
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- (BBC News)
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(help)CS1 maint: multiple names: authors list (link) - Financial Times 27/08/2009 (www.ft.com)
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- BBC (November 7, 2009). "Lukewarm reaction to UK tax plan". BBC. Retrieved 2009-12-17.
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- ^ Stephany Griffith-Jones (December 7, 2009). "Now let's tax transactions". The Guardian. Retrieved 2010-01-13.
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- Michael Sheilds (December 13, 2009). "Volcker finds British bonus tax "interesting": report". Reuters.
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Further reading
- Kaiser, Johannes; Chmura, Thorsten; Pitz, Thomas (July 2007), The Tobin Tax - A Game-Theoretical and an Experimental Approach, Social Science Electronic Publishing
- Patomäki, Heikki (August 2001), Democratising Globalisation: The Leverage of the Tobin Tax, Zed Books, ISBN 978-1856498715
- Haq, Mahbub ul; Kaul, Inge; Grunberg, Isabelle (August 1996), The Tobin Tax: Coping with Financial Volatility, Oxford University Press, ISBN 978-0195111804
External links
- Bank of Portugal report on the defense of the Portuguese Escudo in the European exchange rate mechanism
- BBC 7 November 2009 Lukewarm reaction to UK tax plan
- Currency Transaction Taxes - Library of links to legislation, proposals, reports, articles and archives - from Global Policy Forum
- Disarming the markets, editorial by Ignacio Ramonet, Le Monde Diplomatique 1997
- English version of James Tobin interview on Der Spiegel on Jubilee 2000 web site
- Federal reserve bank of San Francisco article on the failed attack on the Hong Kong dollar
- IMF report (2004) on emerging market currency crises
- The Guardian editorializes against the Tobin tax