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A Note on the Tobin Tax

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Author Info
Korkut Erturk ()
Abstract

This paper clarifies why a transaction tax of the type proposed by James Tobin can have stabilizing influence in financial markets. It argues that such a tax is potentially stabilizing, not because it reduces the 'excessive' volume of transactions, but because it can slow the speed with which market traders react to price changes. To the extent that a Tobin tax causes financial market traders to delay their decisions a few "grains of sand in the wheels of international finance" can indeed be stabilizing. Whether or not that is sufficient to prevent speculative attacks on currencies is, however, a different matter.

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Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2003_05.

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Length: 14 pages
Date of creation: Jan 2003
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Handle: RePEc:uta:papers:2003_05

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Related research
Keywords: Transaction tax speculation finance

Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
B31 - Schools of Economic Thought and Methodology - - History of Thought: Individuals - - - Individuals

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  1. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1995. "Two Cases for Sand in the Wheels of International Finance," Economic Journal, Royal Economic Society, vol. 105(428), pages 162-72, January. [Downloadable!] (restricted)
    Other versions:
  2. Shleifer, Andrei & Vishny, Robert W, 1997. " The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March. [Downloadable!] (restricted)
    Other versions:
  3. Arestis, Philip & Sawyer, Malcolm, 1997. "How Many Cheers for the Tobin Transactions Tax?," Cambridge Journal of Economics, Oxford University Press, vol. 21(6), pages 753-68, November.
  4. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June. [Downloadable!] (restricted)
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  5. Frankel, Jeffrey A & Froot, Kenneth A, 1990. "Chartists, Fundamentalists, and Trading in the Foreign Exchange Market," American Economic Review, American Economic Association, vol. 80(2), pages 181-85, May. [Downloadable!] (restricted)
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  6. Davidson, Paul, 1997. "Are Grains of Sand in the Wheels of International Finance Sufficient to Do the Job When Boulders Are Often Required?," Economic Journal, Royal Economic Society, vol. 107(442), pages 671-86, May. [Downloadable!] (restricted)
  7. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring. [Downloadable!] (restricted)
  8. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
  9. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation, Yale University. [Downloadable!]
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