34 Facts About Tobin tax

Tobin tax was originally defined as a tax on all spot conversions of one currency into another.

Tobin's tax was originally intended to penalize short-term financial round-trip excursions into another currency.

The concept of the Tobin tax is being picked up by various tax proposals currently being discussed, amongst them the European Union Financial Transaction Tax as well as the Robin Hood tax.

In that context, Tobin tax suggested a new system for international currency stability, and proposed that such a system include an international charge on foreign-exchange transactions.

James Tobin's purpose in developing his idea of a currency transaction tax was to find a way to manage exchange-rate volatility.

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Keynes' concept stems from 1936 when he proposed that a transaction Tobin tax should be levied on dealings on Wall Street, where he argued that excessive speculation by uninformed financial traders increased volatility.

Term "Tobin tax" has sometimes been used interchangeably with a specific currency transaction tax in the manner of Tobin's original idea, and other times it has been used interchangeably with the various different ideas of a more general financial transaction tax.

Concept of a Tobin tax has experienced a resurgence in the discussion on reforming the international financial system.

Whilst finding some support in countries with strong left-wing political movements such as France and Latin America, the Tobin tax proposal came under much criticism from economists and governments, especially those with liberal markets and a large international banking sector, who said it would be impossible to implement and would destabilise foreign exchange markets.

EU financial transaction Tobin tax is a proposal made by the European Commission in September 2011 to introduce a financial transaction Tobin tax within the 27 member states of the European Union by 2014.

The scheme makes it impossible for say French or German banks to avoid the Tobin tax by moving their transactions offshore, unless they give up all their European customers.

Swedish experience of a transaction Tobin tax was with purchase or sale of equity securities, fixed income securities and derivatives.

Wrobel's studies do not address the global economy as a whole, as James Tobin tax did when he spoke of "the nineties' crises in Mexico, South East Asia and Russia, " which included the 1994 economic crisis in Mexico, the 1997 Asian Financial Crisis, and the 1998 Russian financial crisis.

In 2005, the Tobin tax was developed into a modern proposal by the United Kingdom NGO Stamp Out Poverty.

In late 2001, a Tobin tax amendment was adopted by the French National Assembly.

Supporters of a Tobin tax, there is a wide range of opinion on who should administer a global Tobin tax and what the revenue should be used for.

Tobin tax proposes that it could be introduced gradually, beginning probably in Europe where support is strongest.

Financial transaction Tobin tax would be separate from a bank levy, or a resolution levy, which some governments are proposing to impose on banks to insure them against the costs of any future bailouts.

In early November 2007, a regional Tobin tax was adopted by the Bank of the South, after an initiative of Presidents Hugo Chavez from Venezuela and Nestor Kirchner from Argentina.

The Tobin tax then became an issue of the global justice movement or alter-globalization movement and a matter of discussion not only in academic institutions but even in streets and in parliaments in the UK, France, and around the world.

Tobin tax declared himself not contrary to this use of the tax's income, but stressed that it was not the important aspect of the tax.

ATTAC and other organizations have recognized that while they still consider Tobin's original aim as paramount, they think the tax could produce funds for development needs in the South, and allow governments, and therefore citizens, to reclaim part of the democratic space conceded to the financial markets.

In 1972, Tobin tax examined the global monetary system that remained after the Bretton Woods monetary system was abandoned.

The impact of such a tax on volatility is of particular concern because the main justification given for this tax by Tobin was to improve the autonomy of macroeconomic policy by curbing international currency speculation and its destabilizing effect on national exchange rates.

Some theoretical studies have concluded that a transaction Tobin tax could reduce volatility by crowding out speculators or eliminating individual 'noise traders' but that it 'would not have any impact on volatility in case of sufficiently deep global markets such as those in major currency pairs, unlike in case of less liquid markets, such as those in stocks and options, where volatility would probably increase with reduced volumes.

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Lanne and Vesala argue that a transaction Tobin tax "is likely to amplify, not dampen, volatility in foreign exchange markets", because such Tobin tax penalises informed market participants disproportionately more than uninformed ones, leading to volatility increases.

When James Tobin was interviewed by Der Spiegel in 2001, the tax rate he suggested was 0.

Accordingly, one of the modern Tobin tax versions, called the Sterling Stamp Duty, sponsored by certain UK charities, has a rate of 0.

Tobin tax estimates that any financial tax should be at most one basis point so as to have negligible effect on hedging.

Swedish experience of a transaction Tobin tax was with purchase or sale of equity securities, fixed income securities and derivatives.

Wrobel's studies do not address the global economy as a whole, as James Tobin tax did when he spoke of "the nineties' crises in Mexico, South East Asia and Russia, " which included the 1994 economic crisis in Mexico, the 1997 Asian Financial Crisis, and the 1998 Russian financial crisis.

An economist speaking out against the common belief that investment banks would bear the burden of a Tobin tax is Simon Johnson, Professor of Economics at the MIT and a former Chief Economist at the IMF, who in a BBC Radio 4 interview discussing banking system reforms presented his views on the Tobin tax.

Opinions are divided between those who applaud that the Tobin tax could protect countries from spillovers of financial crises, and those who claim that the tax would constrain the effectiveness of the global economic system, increase price volatility, widen bid–ask spreads for end users such as investors, savers and hedgers, and destroy liquidity.

On October 5,2009, Joseph Stiglitz said that any new Tobin tax should be levied on all asset classes – not merely foreign exchange, and would be based on the gross value of the assets, thereby helping to discourage the creation of asset bubbles.