The last two decades have witnessed increasingly frequent and severe financial crises that many related to short-term speculation. Consequently, James Tobin’s proposition of a small tax on cross-border currency transactions to reduce such speculation has featured prominently in the discussions on the future of the international financial system. Opponents claim that such a tax can easily be circumvented and would not be effective. This paper scrutinizes these claims in the light of recent refinements made in the literature to make an assessment for the Tobin tax’s effectiveness in coping with financial volatility. Evaluation of the paper suggests that such a tax, indeed, would not only be effective in reducing financial volatility but also technically feasible and relatively easy to apply.
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Find related papers by JEL classification: F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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