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How Effective is the Tobin Tax in Coping with Financial Volatility?

Author

Listed:
  • Mustafa Erdogdu
  • Hale Balseven

    (Marmara University
    Akdeniz University)

Abstract

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.

Suggested Citation

  • Mustafa Erdogdu & Hale Balseven, 2006. "How Effective is the Tobin Tax in Coping with Financial Volatility?," Anadolu University Journal of Social Sciences, Anadolu University, vol. 6(1), pages 107-128, June.
    • Handle: RePEc:and:journl:v:6:y:2006:i:1:p:107-128
    as

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    File URL: http://www.anadolu.edu.tr/arastirma/hakemli_dergiler/sosyal_bilimler/pdf/2006-1/sos_bil.6.pdf
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    References listed on IDEAS

    as
    1. Frank Westerhoff, 2003. "Heterogeneous traders and the Tobin tax," Journal of Evolutionary Economics, Springer, vol. 13(1), pages 53-70, February.
    2. Mr. P. Bernd Spahn, 1995. "International Financial Flows and Transactions Taxes: Survey and Options," IMF Working Papers 1995/060, International Monetary Fund.
    3. Korkut Erturk, 2006. "On the Tobin Tax," Review of Political Economy, Taylor & Francis Journals, vol. 18(1), pages 71-78.
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    6. Bruno Jetin, 2012. "The Tobin tax," Post-Print halshs-02020052, HAL.
    7. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
    8. Robert P. Flood & Mark P. Taylor, 1996. "Exchange Rate Economics: What's Wrong with the Conventional Macro Approach?," NBER Chapters, in: The Microstructure of Foreign Exchange Markets, pages 261-302, National Bureau of Economic Research, Inc.
    9. Frederic S. Mishkin & Andrew Crockett & Michael P. Dooley & Montek S. Ahluwalia, 2003. "Financial Policies," NBER Chapters, in: Economic and Financial Crises in Emerging Market Economies, pages 93-154, National Bureau of Economic Research, Inc.
    10. Thomas Palley, 2001. "Destabilizing Speculation and the Case for an International Currency Transactions Tax," Challenge, Taylor & Francis Journals, vol. 44(3), pages 70-89.
    11. K.S. Jomo & Ilene Grabel & Gerald Epstein, 2003. "Capital Management Techniques In Developing Countries: An Assessment of Experiences From the 1990s and Lessons for the Future," Working Papers wp56, Political Economy Research Institute, University of Massachusetts at Amherst.
    12. Machiko Nissanke, 2003. "Revenue Potential of the Currency Transaction Tax for Development Finance: A Critical Appraisal," WIDER Working Paper Series DP2003-81, World Institute for Development Economic Research (UNU-WIDER).
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    Cited by:

    1. Hale Balseven, 2016. "The Political Economy of Financial Regulation Policies Following the Global Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 607-616.
    2. Yates Nicholas A, 2009. "Revisiting the Tobin Tax, in the Context of Development and the Financial Crisis," The Law and Development Review, De Gruyter, vol. 2(1), pages 257-282, November.

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    More about this item

    Keywords

    Globalization; Short-Term Capital Movements; Tobin Tax.;
    All these keywords.

    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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