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Are Grains of Sand in the Wheels of International Finance Sufficient to Do the Job When Boulders Are Often Required?

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  • Davidson, Paul

Abstract

This paper criticizes the effectiveness of a Tobin tax in acting as a deterrent to short-run round trip speculation on exchange rate movements. It is demonstrated that, given the usual magnitude of a proposed Tobin tax, the deterrent to short-term speculation will be negligible and in all likelihood smaller than the deterrent to real trade flows and arbitrage activities. Finally, an alternative proposal for preventing currency speculation while creating incentives for global full employment, based on John Maynard Keynes's 1940s writings, is proposed. Copyright 1997 by Royal Economic Society.

Suggested Citation

  • 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 671-686, May.
  • Handle: RePEc:ecj:econjl:v:107:y:1997:i:442:p:671-86
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    Cited by:

    1. Korkut Erturk, "undated". "A Note on the Tobin Tax," Working Paper Series, Department of Economics, University of Utah 2003_05, University of Utah, Department of Economics.
    2. Ramkishen Rajan, 2010. "Sand in the Wheels of International Finance: Revisiting the Debate in Light of the East Asian Mayhem," Working Papers id:2686, eSocialSciences.
    3. Alonso, Miguel A. & Rallo, Juan Ramón & Romero, Alberto, 2013. "El efecto de los impuestos a las transacciones financieras en la estabilidad de los mercados de capital. Un debate sin resolver," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(317), pages 207-231, enero-mar.
    4. C. Dow, 1998. "The importance of banks, the quality of credit and the international financial order: reflections on the present crisis in South East Asia," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 51(207), pages 371-386.
    5. C. Dow, 1998. "The importance of banks, the quality of credit and the international financial order: reflections on the present crisis in South East Asia," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 51(207), pages 371-386.
    6. Anna M.Variato, 2003. "The Keynesian Root of the Tobin tax," Working Papers (-2012) 0305, University of Bergamo, Department of Economics.
    7. Hakun Kim, 2004. "The Mathematical Decomposition of the Transactions Velocity of Money," Econometric Society 2004 Far Eastern Meetings 550, Econometric Society.
    8. Miklós Antal & Jeroen C.J.M. van den Bergh, 2014. "Macroeconomics, Financial Crisis and the Environment. Strategies for a Sustainability Transition," WIFO Working Papers 464, WIFO.
    9. Andrea Terzi, 2003. "Is a transactions tax an effective means to stabilize the foreign exchange market?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 56(227), pages 367-385.
    10. Damette, Olivier, 2016. "Mixture Distribution Hypothesis And The Impact Of A Tobin Tax On Exchange Rate Volatility: A Reassessment," Macroeconomic Dynamics, Cambridge University Press, vol. 20(06), pages 1600-1622, September.
    11. Olivier Damette, 2009. "Exchange rate volatility and noise traders: Currency Transaction Tax as an eviction device," Economics Bulletin, AccessEcon, vol. 29(3), pages 2449-2464.
    12. Robert Pollin & Dean Baker & Marc Schaberg, 2003. "Securities Transaction Taxes for U.S. Financial Markets," Eastern Economic Journal, Eastern Economic Association, vol. 29(4), pages 527-558, Fall.
    13. Raviol, Edoardo, 2007. "Stabilizing the International Financial System and Financing Development: An Analysis of the Tobin Tax," Vassar College Department of Economics Working Paper Series 90, Vassar College Department of Economics.
    14. Jochen Hartwig, 1999. "Zum Wesen der Finanzmärkte und der Notwendigkeit von Kapitalverkehrsbeschränkungen," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 25(3), pages 265-283.
    15. G. Bird & R. Rajan, 2001. "Would International Currency Taxation and Currency Stabilisation in Developing Countries?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(3), pages 21-38.
    16. Brian Bentick & Mervyn Lewis, 2003. "Real Estate Speculation as a Source of Banking and Currency Instability: Lessons from the Asian Crisis," Centre for International Economic Studies Working Papers 2003-18, University of Adelaide, Centre for International Economic Studies.
    17. Robert Prasch, 2001. "The Economic Contributions of Robert A. Mundell," Review of Political Economy, Taylor & Francis Journals, vol. 13(1), pages 41-58.
    18. Michelle Baddeley, 2014. "Rethinking the micro-foundations of macroeconomics: insights from behavioural economics," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(1), pages 99-112, April.
    19. Olivier Damette & Beum-Jo Park, 2015. "Tobin Tax and Volatility: A Threshold Quantile Autoregressive Regression Framework," Review of International Economics, Wiley Blackwell, vol. 23(5), pages 996-1022, November.
    20. Seliger Bernhard, 2001. "Die Krise der sozialen Sicherung und die Globalisierung – Politische Mythen und ordnungspolitische Wirklichkeit," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 52(1), pages 215-238, January.
    21. Alho, Kari, 2000. "Optimal Fiscal and Monetary Policies in a Recession : Is There a Way out of the Trap in an Open EconomyN. (Revised September 2002)," Discussion Papers 735, The Research Institute of the Finnish Economy.
    22. Xu, Juanyi, 2010. "Noise traders, exchange rate disconnect puzzle, and the Tobin tax," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 336-357, March.
    23. Davidson, Paul, 2000. "Is a Plumber or a New Financial Architect Needed to End Global International Liquidity Problems?," World Development, Elsevier, vol. 28(6), pages 1117-1131, June.
    24. Nissanke, Machiko, 2003. "Revenue Potential of the Currency Transaction Tax for Development Finance: A Critical Appraisal," WIDER Working Paper Series 081, World Institute for Development Economic Research (UNU-WIDER).

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