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How can a Currency Transaction Tax Stabilize Foreign Exchange Markets?

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  • Bruno Jetin

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

Abstract

In 1971, after the demise of the international monetary system, the so-called Bretton Woods system that ensured semi-fixed exchange rates thanks to capital controls, James Tobin conceived his now famous" Tobin tax". Since then, some supporters of his original proposal have introduced some major changes to make it more suited to financial globalization. Paul Bernd Spahn (2002) in particular has proposed a two-tier Currency Transaction Tax (hereafter CTT). The CTT could curb the usual speculation that occurs during "normal times" but also deter big speculative attacks that strike especially, but not exclusively, developing countries. This paper shows that a fine tuned CTT could discourage, if not suppress, capital flights that plague fragile developing countries before and after the burst of an economic crisis. However it is true that a CTT cannot do everything, but the same applies for every other proposal such as prudential regulations and capital controls. Rather than looking for the fairy's wand, it is wiser to combine a full array of instruments at hand to construct a safe financial environment for economic progressive policies.

Suggested Citation

  • Bruno Jetin, 2003. "How can a Currency Transaction Tax Stabilize Foreign Exchange Markets?," Post-Print halshs-03211712, HAL.
    • Handle: RePEc:hal:journl:halshs-03211712
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03211712
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    References listed on IDEAS

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    Cited by:

    1. Bruno Jetin, 2009. "Financing development with global taxes: Fiscal revenues of a currency transaction tax [Financer le dévelopement avec des taxes globales: Revenus fiscaux de la taxe sur les transactions de change]," Post-Print halshs-02010231, HAL.
    2. Bruno Jetin, 2012. "The Tobin tax," Post-Print halshs-02020052, HAL.
    3. 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.

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