Tobin tax
[1] 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.
Economic literature of the period 1990s-2000s emphasized that variations in the terms of payment in trade-related transactions (so-called "swaps" for instance) provided a ready means of evading a tax levied on currency only.
Because of its restriction to so-called "harmful high-frequency trading" rather than to inter-currency transactions, neither of Clinton's proposals could be considered a true Tobin tax though international exposure would be a factor in the "risk fee".
"[1] 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.
[3][4] 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.
"[14] On September 19, 2001, retired speculator George Soros put forward a proposal based on the IMF's existing special drawing rights (SDRs) mechanism.
[16]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.
It has been proposed that having the United Nations manage a Tobin tax would solve this problem and would give the UN a large source of funding independent from donations by participating states.
[40] The changes in Stamp Duty rates in 1974, 1984, and 1986 provided researchers with "natural experiments", allowing them to measure the impact of transaction taxes on market volume, volatility, returns, and valuations of UK companies listed on the London Stock Exchange.
Jackson and O'Donnel (1985), using UK quarterly data, found that the 1% cut in the Stamp Duty in April 1984 from 2% to 1% lead to a "dramatic 70% increase in equity turnover".
[48] In 1996, the United Nations Development Programme sponsored a comprehensive feasibility and cost-benefit study of the Tobin tax: Haq, Mahbub ul; Kaul, Inge; Grunberg, Isabelle (August 1996).
[53] 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 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.
EU leaders instructed their finance ministers, in May, 2010, to work out by the end of October 2010, details for the banking levy, but any financial transaction tax remains much more controversial.
[64] In early November 2007, a regional Tobin tax was adopted by the Bank of the South, after an initiative of Presidents Hugo Chávez from Venezuela and Néstor Kirchner from Argentina.
James Tobin's interview with Radio Popolare was quoted by the Italian foreign minister at the time, former director-general of the World Trade Organization Renato Ruggiero, during a Parliamentary debate on the eve of the G8 2001 summit in Genoa.
[7][70] 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".
[77][78] Behavioral finance theoretical models, such as those developed by Wei and Kim (1997)[79] or Westerhoff and Dieci (2006)[80] suggest that transaction taxes can reduce volatility, at least in the foreign exchange market.
[85] For a recent evidence to the contrary, see, e.g., Liu and Zhu (2009),[86] 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),[87] 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 [securities transaction tax] and brokerage commissions."
"[88] 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.
Sterling Stamp Duty supporters argue that this tax rate would not adversely affect currency markets and could still raise large sums of money.
A CTT tax rate designed with a pragmatic goal of raising revenue for various development projects, rather than to fulfill Tobin's original goals (of "slowing the flow of capital across borders" and "preventing or managing exchange rate crises"), should avoid altering the existing "fundamental market behavior", and thus, according to Schmidt, must not exceed 0.00005, i.e., the observed levels of currency transaction costs (bid-ask spreads).
"[91] Although Tobin had said his own tax idea was unfeasible in practice, Joseph Stiglitz, former Senior Vice President and Chief Economist of the World Bank, said, on October 5, 2009, that modern technology meant that was no longer the case.
"[60] Nevertheless, 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.
)[95] Based on digital technology, a new form of taxation, levied on bank transactions, was successfully used in Brazil from 1993 to 2007 and proved to be evasion-proof, more efficient and less costly than orthodox tax models.
[107] 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, ...
[108] Former U.S. Federal Reserve Chairman Paul Volcker, President Obama's advisor, has argued that such speculation played a key role in the 2007–2008 financial crisis.
[116] According to Stephan Schulmeister, Margit Schratzenstaller, and Oliver Picek (2008), restricting the financial transactions tax to foreign exchange only (as envisaged originally by Tobin) would not be desirable.
