Tobin Tax Revisited

An old idea that, despite frequent rejections, maintains its “bouncebackability”.

Tobin taxes and audit reform: The blizzard from Brussels, The Economist, 1 Oct 2011
Financial transaction tax: Feasible and desirable if done right,, 30 Sep 2011
EU proposes 0.1 pct financial transaction tax, Reuters, 28 Sep 2011
Long-term investors would benefit from Tobin tax, Financial Times, 27 Sep 2011

A useful analysis of taxes on financial transactions was published by the IMF earlier this year, Taxing Financial Transactions: Issues and Evidence, IMF Working Paper, March 2011

Though superficially attractive, the Tobin tax (or similar financial taxes) has not been generally persuasive….
Yves Mersch, Luxembourg’s central bank governor, neatly summed up the opposing view as follows,

“This is an old idea dressed up in new clothes. The Tobin Tax appears to be a solution in search of a problem, as it has already been suggested to finance developing countries, offset the cost of global warming, prepare for population ageing, etc. Even in the present case, a transaction tax would still not address the underlying problem. In fact, it may actually aggravate it, acting as an additional source of moral hazard. By raising costs, this tax could actually encourage higher risk taking, preparing the ground for the next systemic crisis.” The Financial Crisis – Challenges and New Ideas, Jan 2010.

For further scepticism, start with the following…
ECB’s Mersch Says Tobin Tax on Transactions a ‘Scurrilous’ Idea, Bloomberg, 17 Nov 2009
Tobin taxes: The wrong tool for the job, The Economist, 17 Sep 2009
Time for a Tobin Tax? FRB San Francisco, Economic Letter, Apr 1999