Institute of Development Studies
you are here: Home \ Does evidence support the Robin Hood tax?
Does evidence support the Robin Hood tax?
10 February 2010 - Neil McCulloch
The idea of a Robin Hood, or Tobin, tax is intuitively appealing - taking from wealthy banks, some of whose actions helped to cause the current crisis - and using the money to fund international aid, efforts to combat climate change, and the maintenance of much needed public services at home.
But whether it makes sense depends not on intuition, but on evidence. That is why IDS is currently conducting a review of all the economic evidence both for and against a Tobin Tax. Although the work is ongoing, the initial findings are not what one might expect. Take the issue of volatility - proponents of the Robin Hood Tax argue that, by discouraging speculation, such a tax would reduce the volatility of prices and perhaps help to prevent crashes. Unfortunately, empirical evidence suggests that there is a trade off - dampening speculation also removes liquidity from financial markets which can increase volatility.
The same applies for the cost of the tax. Supporters argue that £250 billion or more could be raised painlessly. Sadly, painless taxes do not exist. The real question is where the burden of this tax would fall. Popular sentiment may be in favour of taxing bankers, but if the net result is lower returns on the assets that make up our pensions, or higher costs of credit for businesses, then it isn't clear whether a Tobin Tax is a more effective way of funding international aid, action on climate change or public services, than other forms of tax.
The Tobin Tax may yet be a good idea. Certainly, the coalition of domestic and overseas charities, unions and church groups campaigning for its introduction reflect a broader desire to ensure that the activities of the financial sector serve the public interest. But it is important that policy proposals are based on sound evidence. The challenge for politicians and policymakers should not be to fight for or against a Tobin Tax, but rather to use to the substantial body of evidence that we already have to design effective ways of ensuring a safer and more socially valuable financial system.
Neil McCulloch is a Research Fellow in the Globalisation Team at IDS
Related News
We don’t need a Tobin Tax – we need an Inductance Tax
Published: 14 Dec 2009
An alternative inductance tax that forces people to queue to buy or sell shares during manias and panics might reduce the impacts of sudden crashes and rises in the market.
Related Projects
- Assessing the Tobin Tax - The current financial crisis has stirred up an old debate about whether it might make sense to impose a Tobin Tax, either on foreign exchange transactions or on all financial transactions. (2009 - 2011)
Partners
