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

  • Mustafa Erdogdu
  • Hale Balseven


    (Marmara University
    Akdeniz University)

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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Article provided by Anadolu University in its journal Anadolu University Journal of Social Sciences.

Volume (Year): 6 (2006)
Issue (Month): 1 (June)
Pages: 107-128

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Handle: RePEc:and:journl:v:6:y:2006:i:1:p:107-128
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  1. P. Bernd Spahn, 1995. "International Financial Flows and Transactions Taxes: Survey and Options," IMF Working Papers 95/60, International Monetary Fund.
  2. Frank Westerhoff, 2003. "Heterogeneous traders and the Tobin tax," Journal of Evolutionary Economics, Springer, vol. 13(1), pages 53-70, 02.
  3. Thomas Palley, 2001. "Destabilizing Speculation and the Case for an International Currency Transactions Tax," Challenge, M.E. Sharpe, Inc., vol. 44(3), pages 70-89, May.
  4. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
  5. 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.
  6. Korkut Erturk, 2006. "On the Tobin Tax," Review of Political Economy, Taylor & Francis Journals, vol. 18(1), pages 71-78.
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