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. Originally proposed by Nobel prize winner James Tobin in the early 1970s, a Tobin Tax aims to reduce volatility in the markets by discouraging short term speculation. In addition, several NGOs are campaigning for the tax because it holds the potential to raise significant funds which could be used for international aid, efforts to combat climate change, or the provision of public services in the UK.
However, whether a Tobin Tax makes sense depends on the evidence. Neil McCulloch, a Fellow in the Globalisation Team at the Institute of Development Studies, is currently conducting a comprehensive review of all the economic evidence both for and against a Tobin Tax. This review will examine both theoretically what we might expect the imposition of such a tax might be, and also empirically what the effects have been of other similar taxes around the world. In particular it will explore whether Tobin-like taxes reduce or increase volatility on financial markets, as well as who in practice is likely to end up bearing the burden of such a tax. The study will also review the evidence on whether it would be possible to implement such a tax in practice.
The project aims to produce a draft working paper by February 2011, with a final comprehensive review of the evidence by June 2011.